BSP firm on new rules on capital adequacy

The Bangko Sentral ng Pilipinas (BSP) said it will not reconsider the provisions of its new guidelines on the risk-based capital adequacy framework, saying that it has already exhausted the consultation process with the banking industry.

BSP Governor Amando M. Tetangco Jr., told reporters yesterday that much of the provisions of the BSP’s new guidelines have already been thoroughly discussed with banking industry leaders, including the schedule of compliance with the standards set by the so-called Basel II Convention.

Tetangco hinted that banks are still trying to persuade the BSP to ease its implementing guidelines but said previous talks have already been exhaustive and industry leaders have agreed on the provisions eventually issued by the BSP.

Tetangco declined to say which banks were asking the BSP to reconsider, saying only that the specific provisions of the guidelines are largely based on agreements arrived at by bank regulators and the industry itself.

According to Tetangco, the schedule of implementing the new capital requirement on foreign currency denominated credit exposures to the National Government (NG) was a proposal made by banks themselves.

The new guidelines were approved by the BSP’s last June, detailing major revisions to the risk-based capital adequacy framework which would take effect on July 1 2007.

The new guidelines aligned the BSP’s existing Basel I-compliant framework with the new Basel II standards, Tetangco explained.

As approved, the BSP decided to maintain the present minimum overall capital adequacy ratio (CAR) of banks and quasi-banks at 10 percent. However, consistent with Basel II recommendations, the BSP approved major methodological revisions to the calculation of minimum capital that banks and quasi-banks are required to hold against actual credit risk exposures.

The new guidelines also included a completely new feature that introduced bank capital charge for operational risk.

"These guidelines reflect our basic confidence in the fundamental soundness and ability of the industry to make the necessary adjustments to be fully compliant with international standards," Tetangco said, indicating that taking back the standards already agreed on would not reflect well on this ability.

To operationalize the so-called operational risk capital requirement, the BSP approved a uniform basic charge of 15 percent of gross income as the simplest option.