PDIC ready to assist banks comply with Basel II capital requirements

The Philippine Deposit Insurance Corp. (PDIC) is ready to extend assistance to any bank as the implementation of Basel II in July is expected to strain the finances of lenders.

In an interview, PDIC president Michael R. Osmena said they are willing to lend support to banks provided the request has merit. However, he stressed that no one has asked for any financial support yet.

"So far none of the banks are asking for any assistance," Osmena told The Star over the weekend.

The bank regulator said there is a probability that some financial institutions may need aid. "There may be some but a lot of them will have to comply," he explained." There may be several banks who will be asking (for assistance) but I don’t think there will be many because they are all preparing for it now … they have enough time to prepare for it," he added.

Most banks have already improved their financial position through capital offerings. Another coping mechanism for banks is through mergers and acquisitions.

There were several mergers this year. Banco de Oro Universal Bank of mall magnate Henry Sy gobbled up the larger Equitable PCI Bank through a tender offer. Likewise, Aboitiz-led Union Bank of the Philippines acquired the medium-sized International Exchange Bank (iBank). Recently, Philippine Trust Co. owned by publishing tycoon Emilio Yap has expressed its intent to buy Philippine Bank of Communications.

According to him, not only will mergers create bigger and more financially stable banks, consolidation will also mean globally competitive institutions.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. cited three main difficulties that banks in emerging markets face in improving its risk management systems under Basel II. These are data problems, large human and information technology (IT) costs and lack of suitable techniques for designing and calibrating models to evaluate alternative scenarios.

He said the industry reaction is both revealing and interesting as the banks move into the implementation of Basel II in 2007. "It is rather disappointing that it takes regulatory pressure for many banks to start investing in a sound risk management system," Tetangco said.

Under Basel II, banks are expected to improve its risk management system by estimating probabilities of default on lenders’ portfolio as well as losses in cases of default.