BSP extends small banks’ compliance to capital rule

Lawrence Agcaoili - The Philippine Star

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has given mid-sized and small banks more time to comply with the enhanced capital adequacy standards amid the coronavirus disease 2019 or COVID-19 pandemic.

BSP Governor Benjamin Diokno said the Monetary Board has approved amendments to the risk-based capital adequacy frameworks for banks and quasi-banks via Resolution 570 issued on April 24.

Under Circular 1084, Diokno said stand-alone thrift banks as well as rural and cooperative banks now have until Jan. 1, 2023 to comply with the minimum capital ratios and the capital conservation buffer (CCB) instead of Jan. 1, 2022 announced last February through Circular 1079 issued on March 9.

Diokno stated in the circular that stand-alone mid-sized and small banks should undergo an observation period until end-December 2022 to make sure they meet the minimum capital ratios through reasonable measures without disrupting banking activities.

The regulator adopted the enhanced risk-based capital adequacy framework for mid-sized and small banks as it reinforces the importance of maintaining sufficient level of common equity that could absorb losses on an ongoing basis.

The enhanced capital standards provide minimum capital ratios of six percent common equity Tier 1 (CET1) ratio and 7.5 percent Tier 1 ratio, in addition to the existing minimum capital adequacy ratio (CAR) of 10 percent.

Tier 1 capital is largely comprised of CET1 capital elements such as common shares, additional paid-in capital, retained earnings, and undivided profits, while the additional Tier 1 capital is mostly made up of eligible perpetual capital instruments.

Likewise, stand-alone thrift banks, rural banks, and cooperative banks are also required to comply with the 2.5 percent CCB. The buffer is in the form of CET1 capital and is computed in excess of the six percent CET1 ratio.

On the risk weighting, Diokno said loans to small farmer and fisherfolk to the extent guaranteed by the Agricultural Guarantee Fund Pool (AGFP) would be risk weighted at zero instead of 20 percent prior to the transfer of the administration of the AGFP to the Philippine Guarantee Corp. (Philguarantee).

Furthermore, peso-denominated exposures to the extent guaranteed by Industrial Guarantee and Loan Fund (ILGF), Home Guaranty Corp. (HGC), Agricultural Credit Policy Council, and Philguarantee would also receive a zero risk weight.

Likewise, loans to micro, small and medium enterprises (MSMEs) that are performing to the extent guaranteed by a qualified credit surety fund (CSF) cooperative would carry a 20 percent risk weight instead of the reduced 50 percent.

The BSP has been adopting prudential measures to assist the MSME sector that account for 99.5 percent of the total business establishments and 63.2 percent of the employment carry on with its business during the crisis and hasten recovery and sustainability of their operations in the post-crisis period.

The central bank also lengthened the period of relief on the reporting of past due and non-performing loans of borrowers affected by the COVID-19 to December instead of the original timeline of March next year.

Chamber of Thrift Banks executive director Suzanne Felix said the COVID-19 pandemic has raised the prospect of a deep recession globally.

“With COVID-19 and enhanced community quarantine impacting the equity value of banks and MSMEs due to higher non-performling loans, it has become necessary for our regulators to extend such support in order to keep banks supportive of their existing distressed MSME and consumer borrowers, and encourage them to make new loans to these sectors,” Felix said

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