MANILA, Philippines - The Bangko Sentral ng Pilipinas has assigned a lower risk weight on dollar denominated bonds issued by the Phili-ppines after the country was awarded investment grade ratings last year.
In circular, the central bank changed its assigned risk weight on “foreign currency denominated claims on or portion of claims guaranteed by or collateralized by foreign currency denominated securities issued by the Philippine national government and the BSP†to 50 percent from 100 percent.
The adjustment applies on the risk-based capital adequacy framework of stand-alone thrift banks, rural banks, and cooperative banks.
BSP Governor Amando M. Tetangco Jr., in an e-mail said the move will also be incorporated in the Basel 1.5 guidelines, which was implemented for small banks in the start on 2012.
“This was to align our Basel 1.5 capital framework for simple banks (TBs and RBs) to the fact that ROPs are now investment grade, with a lower risk weight of 50 percent,†Tetangco explained.
Dollar-denominated bonds issued by the Philippines are also called ROPs.
“This is to cover cases when the TBs/RBs are invested in ROPs,†Tetangco recounted.
“The original framework hard-coded a 100 percent risk weight consistent with a sub-investment grade ROP then. The change is essentially a market risk calibration of the risk weights,†he continued.
The Philippines enjoys investment grade ratings from the world’s three major credit rating agencies which all cited the strong growth achieved by the economy, improved governance, and structural reforms being put in place by the current administration.
Fitch Ratings in March last year upgraded the country’s credit rating to ‘BBB-’ with a stable outlook from junk, while Standard & Poor’s in May gave the Philippines a ‘BBB-’, also with a stable outlook.
Moody’s Investors Service, meanwhile, delivered its Baa3 in October with a positive outlook. The positive outlook means another upgrade may be on the horizon for the country in the next 12 to 18 months.