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25 January 2010

Philippine central bank to tighten rules for risky banks

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The Philippine central bank is looking at requiring banks that take on more risky investments to maintain bigger capital to protect depositors, GMANews.TV reported.

“We are looking into banks with higher risk exposures or those engaged in aggressive activities such as derivatives trade. Maybe these banks should be required to have higher capital adequacy ratios," Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. said last week.

The more these banks expose themselves to risks, the higher should be the ratio in order to safeguard their assets, the bulk of which are owned not by shareholders but by depositors, he pointed out.

As of end-June, the banking industry’s capital adequacy ratio — a measure of a bank’s capital in relation to the risks it takes — stood above the regulatory minimum of 10 percent. It was also better than the Basel Accord’s standard ratio of 8 percent.

Regulators use the ratio to monitor the health of the financial system.

Tetangco said the BSP, like other central banks around the world, are reviewing capital adequacy requirements to make sure these remain relevant.

Six foreign banks — Standard Chartered Bank, ANZ Banking Group, HSBC, ING bank, JP Morgan Chase and Deutschebank — have derivative licenses to engage in structured products such as swaps, options and forwards.

Some of the local banks with the license to engage in these exotic products include the Metropolitan Bank and Trust Co, Bank of the Philippine Islands and Security Bank.

There is a separate license for each derivative product or service offered, Tetangco said.

He added that while there is a plan to adopt a higher capital adequacy ratio for more aggressive banks, the proposal needs a law. Tetangco said the proposal forms part of proposed changes to the BSP charter.

“At present the regulatory capital adequacy is a uniform 10 percent across all banks. We will come up with guidelines once the amendment is approved," he said.

As of last June, the industry ratio on a solo basis, which includes banking operations here and abroad, stood at 14.81 percent. On a consolidated basis, which includes banks’ subsidiaries, the ratio stood at 15.68 percent. The ratios were 0.25 and 0.38 percentage point higher, respectively, than the figures at the end of March. —


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