Banks expected to have no problems complying with BSP’s new rules

MANILA, Philippines - Maybank ATR Kim Eng said yesterday local banks are expected to easily comply with the new set of guidelines released by the Bangko Sentral ng Pilipinas earlier this week.

The central bank earlier this week enhanced rules on banks’ credit risk management, issued higher minimum capital requirements and released guidelines for “too big to fail” banks which also entails increasing their capital buffers.

“The BSP expects stronger credit risk management will enable greater flexibility in extending credit, credit product innovation and development of lending programs,” Katherine Tan, analyst at Maybank ATR Kim Eng said in a research note.

“In all, the enhanced regulations should make the banking sector stronger and more competitive amid the ASEAN (Association of Southeast Asian Nations) integration in 2015,” she said.

Mandated revisions to banks’ credit risk management framework include focusing on borrowers’ cash-flow analysis and ability to pay instead of collateral. Banks were also ordered to develop internal risk rating systems and stress testing policies to better assess their credit risk exposures.

The new rules also encourage lending to the micro and small firms as borrowers will be exempted from some documentary requirements.

At the same time, the central bank said “too big to fail” or “domestic systemically important banks” (DSIBs) will be ordered to increase their minimum common equity tier 1 ratio by 1.5 to 3.5 percent based on their classification. The tougher requirement is on top of the existing CET1 minimum of six percent and a capital conservation buffer of 2.5 percent.

Tan said most local banks are expected to comply easily with the increase in minimum capital requirements, although this policy may prompt more consolidation in the industry.

The existing minimum capital requirement for universal banks at P4.95 billion and that for commercial banks at P2.4 billion have been unchanged since 1999.

Universal banks with only head offices in the country should now maintain a minimum capital of P3 billion, while those with up to 10 branches need at least P6 billion. Universal banks with 11 to 100 branches are required to keep a P15 billion capital, while those with more than 100 branches need P20 billion.

For commercial banks with only head offices, a P2 billion capital has been required. This will increase to P4 billion for those with up to 10 branches, and to P10 billion for a network of 11 to 100 branches. Commercial banks with more than 100 branches are required to have a capital of P15 billion.

Thrift, rural and cooperative banks, meanwhile, will need to maintain a capital based on their branches and the location of their head offices.

Thrift banks with head offices in Metro Manila are now required to have P500 million to P2 billion as minimum capital, based on the number of their branches, while those headquartered outside the capital need P200 million to P800 million.

Rural and cooperative banks with head offices in Metro Manila are also now mandated to keep a P50 million to P200 million in capital based on their branch network. Those with head offices outside the capital and in first to third class municipalities are required a minimum of P20 million to P80 million in capital, while those headquartered in fourth to sixth class municipalities should have P10 million to P40 million for capital.