Basel 3 CAR rules on by 2014

January 6, 2012 11:24 pm 

MANILA, Jan. 6 – The Bangko Sentral ng Pilipinas (BSP) will fully implement the Basel 3 capital adequacy standards for universal and commercial banks (U/KBs) by January 1, 2014.

In a briefing, BSP Deputy Governor Nestor Espenilla Jr. said there would be no gradual or staggered implementation of Basel 3 but they would conduct series of consultation with the industry this year before the parallel run next year.

With the Basel 3 implementation, U/KBs will be required to meet the minimum Tier 1 capital of 7.5 percent from the current five percent while the minimum common equity (Tier 1) capital ratio was set at six percent from zero to date.

Also, U/KBs will be required to meet the 2.5 percent capital conservation buffer (CCB), 8.5 percent minimum Tier 1 capital plus CCB, 100 percent deduction from Tier 1, 12.5 percent minimum total capital ratio plus CCB, all of which are not required under the current Basel 2 requirements.

Also, the capital instruments that no longer qualify as T1 or Tier 2 capital, which is currently subject to Circular 709, were derecognized.

Espenilla said implementation of Basel 3 in the country by 2014 puts the country alongside China, Australia, Hong Kong and Singapore in terms of their planned implementation of the latest risk-based requirement for banks.

The Basel Committee on Banking Supervision (BCBS) has outlined the staggered implementation of Basel 3 until 2018 to allow banks to raise capital organically but Espenilla said the decision of BSP’s policy-making Monetary Board (MB) to fully implement the new requirement by 2014 was based on the current strength of the industry.

Espenilla said that U/KBs would not be negatively affected by the new rule because the industry had a strong capital position.

“The minimum level would still be met after all these reforms,” he said.

The central bank official said that it was better to implement reforms when the country’s banks were strong instead of putting reforms only after a crisis.

He also said banks should maximize the current investors interest to the country.

“There’s actually a lot of interest in the Philippines so it’s actually an opportune time for banks to raise equity capital because there is so much money,” he said.

Espenilla also urged banks to analyze the current situation vis-à-vis the upcoming increase in capital requirement “so banks can manage the situation either by controlling their risks better or pro-actively increasing more capital.” (PNA) RMA/JS/utb


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