BANKS in the country are more than ready to comply with global standards on capital and liquidity buffers due in January, a central bank official said, with latest data showing they are well above the required levels.
Universal and commercial banks have more than enough funds to meet the requirements under the Basel III framework, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said, months before these are imposed on Jan. 1, 2019.
“… [L]ocal lenders can comply with the international standards, not only of the Basel accord, but other standards set forth by international standard setting bodies. The Philippine banking system’s relative position of strength also enables it to fully comply with international standards,” Ms. Fonacier said in a recent e-mailed response to queries.
“Based on our monitoring of the BSP’s roll out of the Basel III reforms, we have noted excess compliance with the minimum standard requirements in general.”
All four standards — the risk-based capital adequacy ratio (CAR), common equity tier (CET) 1 ratio, leverage ratio framework, and liquidity coverage ratio (LCR) — are well above the minimum levels set by Basel III.
“Most of the big banks have undergone a series of capital raising as early as last year and this year,” Edwin R. Bautista, president and chief executive officer of the Union Bank of the Philippines, replied when sought for comment.
Banks in the country have embarked on fund-raising this year to raise fresh capital in anticipation of the implementation of the Basel III requirements as well as to support business growth.
“As of June 2018, most of the top 10 publicly listed banks’ CAR… and CET1 ratio remain well above regulatory minimum. CAR… of listed banks range from 13% to 18%, while CET1 range from 11% to 16%,” Mr. Bautista noted.
“Hence, there is sufficient buffer over the regulatory minimum even if the full HLA (higher loss absorbency) is implemented for those classified as ‘too-big-to-fail’ banks.”
The international Basel III framework is a set of prudential measures designed to improve risk management among banks.
Such measures are meant to help guarantee that banks will not fold in the face of excessive financial stress, drawing lessons from the 2008 Global Financial Crisis.
Latest available data show that big banks maintained a risk-based CAR of 15.87% as of end-June, which is substantially higher than the 10% requirement set by the central bank since 2014.
The CET 1 ratio, which focuses on high-quality capital buffers, stood at 14.2% versus the six percent minimum.
The leverage ratio — which checks “excessive” accumulation of assets by limiting banks’ loan exposure — amounted to 9.59% of banks’ total funds as of June versus the five percent standard that took effect in July.
Banks in the country are also prepared to adopt the LCR, which requires big banks to hold high-quality, readily convertible assets to cover net cash outflows for a 30-day period. Lenders had already set aside buffers equivalent to 164.44% of their projected needs as of June, which is well above the 90% coverage prescribed this year and the 100% set for 2019.
Philippine banks are “generally comparable” with regional and global peers in terms of Basel III compliance, Ms. Fonacier said, noting that compliance in the country has been generally within the middle of the pack versus other banking systems.
“In view of Philippine banks’ focus on domestic market, their competitive advantage lies not only in their ability to comply with the Basel reforms but also in their familiarity with the market and established relationships with their clients,” the central bank official added.
“Exposure to external shocks are manageable.”