A new mandate is out, increasing the banks’ regulatory capital up to four times where they are at present and comes on the heels of a capital buildup scheme, where the size of any lender’s capital is linked to the type and volume of risk it is taking.
The new regulatory capital schedule requires the big universal lenders with minimum capital of only P4.95 billion at present to observe a tiered capital schedule based on the number of branches, starting with P6 billion for unibanks with up to 10 branches; P15 billion for those with 11 up to 100 branches; and P20 billion for lending networks exceeding 100 branches.
The expanded capital schedule applies to all types of banks and recognizes the expanded risk attendant to an environment marked by growing complexity and asset holdings, heightened competition from within and without, as well as a recognition of the opportunities and risks the local lenders face as financial integration happens just a few short years away. In a statement, the Bangko Sentral ng Pilipinas (BSP) said the policy-making monetary board decided to increase the minimum capital requirement for all bank categories—including universal, commercial, thrift, rural and cooperative banks to “further strengthen the banking system.”
The increase in minimum capitalization will be based on network size and their classification as lender. The revised minimum capital is a separate requirement from the recent Basel 3 regulatory mandates, which were risk-based and illustrated the most by the capital adequacy ratio.
Under the new regulation, universal banks with more than 10 branches should have minimum capital of P6 billion. Universal banks with 11 to 100 branches should have minimum capital of P15 billion, while those with 100 branches—such as the top banks in the country—need to quadruple their capital base to P20 billion.
For regular commercial banks, from the existing P2.4-billion minimum capital requirement, they need to double the amount if they have up to 10 branches.
For commercial banks with 11 to 100 branches, they must increase their capital base to P10 billion. For commercial banks with more than a hundred branches, they need to increase to P15 billion.
For the small lenders, the increase will depend on the type of bank, the number of branches and the location of their head office. Thrift and rural banks whose head offices are in the National Capital Region (NCR) will have to increase their capital more than those with head offices outside NCR.
Banks that cannot immediately meet the new minimum capital requirement may avail itself of a five-year transition period to fully comply, according to the BSP. These banks must submit an “acceptable” capital build-up program.
“Banks that fail to propose an acceptable capital build-up or otherwise fail to comply with the minimum capital requirements face curtailment of future expansion plans,” the central bank said.
The central bank said this was a prudent move to continuously update domestic regulatory standards given the ever-changing risks in the banking sector.
Likewise, the infusion of additional capital should help position the various lenders for when the Asean Banking Integration Framework is implemented in a few years.
“The Monetary Board adjusted the level of required minimum capital to ensure that banks stand on a strong capital base to support a threshold scale of operations to operate viable and service effectively the needs of their clients,” the BSP said.
This marked the first time that the central bank raised the minimum capital requirement for universal and commercial banks. The thrift banks’ minimum capital requirement was last increased in 2010, while that of the rural banks’ were last increased in 2011.