BSP orders stricter capital standards
Thrift rural and cooperative banks, which are not subsidiaries of the big banks, are to adopt stricter capital adequacy standards beginning 2012, the central bank has ordered.
In a statement, the Bangko Sentral ng Pilipinas yesterday said these “stand alone” thrift, rural and cooperative banks are to migrate to the Basel 1.5 framework on capital adequacy by January 1, 2012, in line with its goal of strengthening individual banks and the banking system as a whole.
These banks currently operate under the Basel 1 framework, while universal and commercial banks have been governed by Basel 2 rules beginning July 1, 2007.
The Basel rules, formulated by Basel Committee on Banking Supervision, based at Switzerland-based Bank for International Settlements, are standards on how much capital banks should have in relation to the risks they take.
The BSP has adopted the Basel standards, stressing the need for local banks to have enough capital to absorb losses, and thereby, protect their depositors. The central bank also wants to ensure the integrity of the banking system.
Basel 1 only accounts for credit risk and market risk while Basel 2 includes operational risk.
The enhanced Basel 1 framework — Basel 1.5 — for stand alone thrift, rural and cooperative banks introduces a 100% risk weight for their exposure to foreign-currency national government or central bank debt, instead of the 0% risk weight at present.
This new rule will be phased in over a three-year period, such that 1/3 of the risk weight is applied on January 2012, 2/3 on January 2013 and the full weight on January 2014.
“This means that every P100 foreign-currency denominated exposure to NG/BSP will require a P3.33 capital charge starting 2012, P6.67 capital charge starting 2013 and P10 capital charge starting 2014,” Teodora I. San Pedro, director of the BSP office of supervisory policy department, said in an email.
Banks’ real and other properties acquired will be assigned a 150% risk weight from 100% at present, which will be phased in over a three-year period.
“This revision is aligned with the BSP’s thrust of reducing banks’ level of non-performing assets to strengthen the overall asset quality of the banking system,” the central bank explained.
The BSP will also introduce a capital requirement for operational risk. BusinessWorld