Phl banks expected to issue more debt instruments to raise capital

MANILA, Philippines - Philippine banks are expected to issue more debt instruments to further increase their capital under the more stringent Basel III rules, Fitch Ratings said yesterday.

“Philippine banks are likely to issue more Basel III-compliant Tier 2 instruments, which will be mostly targeted at the domestic market,” the debt watcher said.

Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector.

To improve the quality of their capital, banks have been retiring their non-compliant securities and modifying them or issuing debt compliant with the Basel III measures.

“There has been over P50 billion of Basel III Tier 2 instruments issued to date in the Philippine banking system... Activity picked up following Basel III implementation in January 2014, with issuance to date limited to the local market amid more favorable pricing for the banks and healthy domestic demand from institutional investors and trust accounts,” Fitch Ratings said.

“The issuance of these new types of instruments compares with the over P120 billion in legacy Basel II-Tier 2 capital outstanding, which much be replaced eventually,” it said.

Data from the Bangko Sentral ng Pilipinas showed that universal, commercial, thrift, rural and cooperative banks recorded P31.97 billion in net profit in the first quarter of the year, 49 percent lower than the previous year’s P62.92 billion.

The decrease was a result of lower trading gains realized in the current year.

In 2013, Philippine banks grew their net profits by 19 percent to P144.646 billion and improved their return on equity to 13.29 percent.