By Lawrence Agcaoili (The Philippine Star) Updated January 17, 2012
12:00 AM Comments (0)
MANILA, Philippines - New York-based Moody's Investors Service said the
decision of the Bangko Sentral ng Pilipinas (BSP) to implement a higher
capitalization requirement for universal and commercial banks under the
Basel III reforms starting 2014 would translate to higher credit rating
for Philippine banks.
In a report, Moody's analyst Simon Chen said the decision of the BSP to
impose tighter capital adequacy standards beginning 2014 instead of the
2018 schedule set by the Bank for International Settlements (BIS) would
be favorable to the credit rating of local banks.
"BSP's stricter guidelines are a proactive measure to ensure that
Philippine banks add to their loss absorption capacity and limit the
deterioration of their credit profiles amid adverse external
conditions," Chen stressed.
Compared with the international standards, he pointed out that BSP's
Basel III guidelines are stricter as it imposes a higher minimum capital
requirements of six percent common equity Tier 1 (CET1) ratio compared
to 4.5 percent by the BIS, a Tier 1 ratio of 7.5 percent versus six
percent, and a total capital ratio of 10 percent versus eight percent.
He added that the January 2014 deadline for the implementation of a 2.5
percent capital conservation buffer set by the BSP is faster tham the
January 2019 deadline set by the BIS.
"Setting the local benchmark above the international standard reflects
BSP's consistent drive to create stronger banks and improve banks'
ability to overcome systemic risks," the analyst said.
This early, Chen said Philippine banks are generally well capitalized by
international standards as the average CET1 ratio of its rated
Philippine banks' stood at 12 percent, Tier 1 ratio at 13 percent, and
total capital ratio at 16.9 percent as of September last year.
"Strong earnings and proactive capital management will help banks
maintain capital levels well above the higher minimums," Chen added.
The analyst pointed out that Metropolitan Bank and Trust Co.,
Development Bank of the Philippines, and Rizal Commercial Banking Corp.
would not find the higher capital requirements onerous as their
estimated CET1 ratios were well above the higher requirement at 11
percent as of end-September.
Furthermore, banks with aggressive growth plans including BDO Unibank
Inc. and United Coconut Planers Bank would be most affected by the
higher capital requirements as they have been growing their loan assets
more rapidly than the industry's average annual growth rate of 11
percent over the past three years.
"Higher capital requirements will force them to re-prioritize and scale
down their growth plans. Against a backdrop of rising net interest
margin pressures domestically, a likely consequence is the decline in
their loan and income growth, and, in turn, their ability to generate
capital internally," Chen warned.
The rating agency said UCPB would be more affected as its estimated CET1
ratio is below six percent as over 80 percent of its Tier 1 capital is
in capital notes issued as part of its rehabilitation plan.
"Unlike BDO, whose shares are actively traded on the local bourse, UCPB
has no capital market access because it is under rehabilitation and the
bulk of its shares are sequestered by the Philippine government," he said.
Likewise, the decision of the BSP to impose tighter capitalization
requirements starting 2014 would not affect the proposed merger of
Philippine National Bank and Allied Banking Corp. - both owned by
airline and tobacco magnate Lucio Tan - as their average CET 1 ratios
stood above 12 percent as of end-September.
Bankers Association of the Philippines (BAP) president Aurelio Montinola
III earlier said most banks operating in the country are ready to comply
with the tighter capitalization requirement under the Basel III.
"Directionally, the implementation of tighter rules is a good move as it
adheres moves together with enhancements of international standards," he
stressed.
Montinola, who is also president and chief executive officer of the
Ayala-controlled Bank of the Philippine Islands (BPI), said the
Philippines was also ahead in complying with the capitalization
requirements under Basel II.
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