ASEAN KEY DESTINATIONS
PHL lenders to meet capital needs of banks 'too big to fail' – Fitch
Most big banks in the Philippines are able to meet the new capital requirements for domestic systemically important banks (D-SIB) deemed "too big to fail," debt-watcher Fitch Ratings Inc. said Wednesday.
The Bangko Sentral ng Pilipinas (BSP) announced Monday that it has completed identifying D-SIBs "whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy."
D-SIBs are required to maintain additional Common Equity Tier 1 equivalent to 1.5 percent to 2.5 percent of their risk-weighted assets on top of the existing 10 percent capital adequacy ratio required by the central bank.
"A handful of the largest banks including BDO Unibank, Bank of the Philippine Islands and Metrobank are likely to incur a 2.5 percent additional loss-absorption requirement while other large lenders should fall into the 1.5 percent bucket," Fitch said.
The BSP has not publicly disclosed the list that will be updated every year. The central bank will notify D-SIBs individually of their classification.
The central bank BSP will implement the higher capital requirement in phases from January 2017 to January 2019.
Parent banks, which tend to have lower capital ratios, would have failed to comply with the higher capital requirement had the central bank imposed the requirement at the end of 2014, Fitch said.
But any bank with a shortfall would have to take action to comply with the requirements ahead of the phase-in period, the debt-watcher added.
Parent banks could supposedly expand their capital buffers through internal capital generation, which would require a slowdown in credit growth or an increase in earnings retention.
"Our internal simulations affirm that a reasonable earnings retention program would be sufficient to bring the capital level of D-SIBs within the required threshold," BSP Governor Amando Tetangco Jr. said in a separate statement Monday.
Alternatively, banks could raise more common equity or streamline subsidiary holdings, according to Fitch.
The increase in core capital, however, will add to pressures on profitability as intensified competition arises from foreign banks entering the Philippines, it noted.
Aside from the higher capital requirement, the BSP also set higher supervisory expectations for D-SIBs.
For instance, recovery plans in case of breaches in capital requirements must be outlined in their annual documents on Internal Capital Adequacy Assessment Process.
"The higher bar for D-SIBs in terms of capital requirement and supervisory expectations serves to strengthen the system by lowering the probability of systemic bank failures," Tetangco said.
The D-SIB framework is aligned to the Basel III initiatives, which aim to address the weaknesses of the international banking industry that was revealed during the global financial crisis. – VS, GMA News
Letters that do not contain full contact information cannot be published.
Letters become the property of AseanAffairs and may be republished in any format.
They typically run 150 words or less and may be edited
submit your comment in the box below