Now is best time to impose liquidity cap on banks, says ATR

MANILA, Philippines - ATR Kim Eng Securities Inc. said industry’s strong cash position would enable banks to comply with tighter capitalization standards to be imposed by the Bangko Sentral ng Pilipinas (BSP).

The securities firm said in its “Daily Edge” report that Philippine banks are in a better position to survive adverse conditions because of the industry’s strong liquidity position.

“Given the high levels of liquidity today, now is probably the best time to come up with tighter standards so that the adjustment process would not be difficult,” it stated in the report.

The BSP has reported that efforts to beef up their capital to survive the global financial crisis helped banks stay afloat and even exceeded the capital levels required by the central bank and the international standards.

Latest data showed that the banking system recorded a capital adequacy ratio (CAR) level of 14.81 percent on a solo basis and 15.68 percent on a consolidated basis as of end-June.

The BSP said the CAR of banks as of end-June was 0.25 percentage point higher and 0.38 percentage point higher than the comparable ratios as of end-March.

The banking system’s CAR, according to the BSP, continued to post a wide margin over the central bank’s minimum capital ratio of 10 percent and the Basel Accord’s standard ratio of 8 percent.

The BSP added that the tier 1 capital ratios of the banking system stood at 12.18 percent on a solo basis and 12.28 percent on a consolidated basis surpassing the six percent minimum ratio required by the central bank.

ATR King Eng Securities said the BSP plans to conduct stress tests on the Philippine banks to measure how much adverse conditions could affect their liquidity positions.

It added that the proposal is aimed at coming up with more stringent guidelines on the levels of liquid assets they would be required to maintain.

Earlier, BSP Deputy Governor Nestor Espenilla Jr. said the central bank would update the liquidity management framework to improve the overall risk management of banks.

Espenilla pointed out that the BSP would come up with more specific guidelines in terms of having enough liquid assets, having back-up facilities, and others.

The BSP also gave universal and commercial banks more time to conduct their internal capital adequacy assessment and set the appropriate capital level to fit their operations.

This after the Monetary Board (MB) has agreed to extend the effectivity of BSP Circular 639 from Jan. 1, 2010 to Jan. 1, 2011.