Toward a stronger rural banking industry

Toward a stronger rural banking industry

Thursday, 02 December 2010 00:00
 
In raising the capital requirement on rural banks, the BSP noted that it was the right time to do it and that the last time such an increase in capital requirement was way back in December 1999. It noted the prevailing capital requirements were no longer adequate to sustain competitive and robust banks.
A tougher challenge awaits rural banks when the Revised Risk-Based Capital Adequacy Framework for thrift, rural, and cooperative banks takes effect at the start of 2012 after the Monetary Board approved deferring the measure from Jan. 1, 2011.

The framework would subject thrift, rural, and cooperative banks, which are not affiliated with bigger universal and commercial banks to higher capital adequacy standards under the Basel 1.5 rules—which are less stringent than the Basel 2 imposed on commercial banks and their subsidiaries.

Basel 1.5 requires rural, thrift and cooperative banks to set aside funds for risks out of the ordinary such as fraud, system failures, and natural calamities.

The framework also provided for a higher 150 percent risk weight on banks’ real and other properties acquired to be implemented over three years, or until 2014 which is aimed at reducing the level of non-performing assets of banks.

It would also require banks a 12 percent of gross income provision for operational risks to be staggered over a three years, to 4 percent starting 2012, 8 percent starting 2013 and 12 percent by 2014.

Likewise, thrift, rural, and cooperative banks would be required to disclose to the BSP the components of its capital provisions applied to credit, market, and operational risks; and total and tier 1 capital adequacy ratios.

The Monetary Board agreed to defer the implementation of Basel 1.5 on rural banks through the intercession of RBAP that worked extra hard to allow its members breathing space from the tighter regulatory requirements.

The RBAP during its meetings with the BSP on Basel 1.5 made clear that it fully agreed with the requirement regulator’s vision to strengthen the local banking industry through tougher requirements but that this should be phased in over time to allow banks to adjust to the new capital buildup.

The BSP, nevertheless, recognizes the underlying strength of the rural banking industry the reason for its confidence on countryside banks’ capability to assume tougher requirements.

A robust rural banking industry concerns not only the regulators but more so with rural banks.

--
---------------------------------------------
CARLOS ANI - SEEDFINANCE Corporation - http://www.seedfinance.net
Email: carlosani@seedfinance.net
Landline: +63495010127 Cellphone: +639152919580
DEVJOBS - http://www.devjobsmail.com
PHILDEVFINANCE - http://phildevfinance.posterous.com http://phildevfinance.wordpress.com
CONSULTING - http://www.carlosani.com
My Clippings - http://www.myclipps.posterous.com
------------------------------------------