THE recent moves of the Bangko Sentral ng Pilipinas (BSP) to tighten bank-capital rules may prove to be “restrictive” of the country’s near-term growth, on top of the tightening measures on monetary policy just this year, a regional banking giant said.
In a recent commentary, the DBS Bank said that, while it remains to be seen how much of an impact the string of policy-rate hikes this year will affect the gross domestic product (GDP) growth momentum going into next year, the minimum-capital requirement rules are probably more restrictive to growth than the policy-rate hikes alone.
The central bank has imposed two recent mandates to strengthen the local banks’ capitalization. Just this month, the central bank rolled out a new framework to increase the banks’ minimum-capital requirement level by as much as four times its existing size—or up to P20 billion from the current P4.95 billion—depending on the banks’ network size.
A day after, the central bank announced that systemically important banks—or local financial institutions characterized as banks whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy—are required to raise their common equity Tier 1 (CET1), depending on their classification.
CET1 represents the highest quality of bank capital qualified under the new Basel-3 capitalization rules.
While DBS did not cite the extent to which the recent capital rules will affect the 2015 GDP growth, the bank said that a closer look at loan growth going forward “may prove crucial to have a better sense of GDP growth prospect in 2015.”
The bank also said that although the BSP may be aware of the repercussions of its moves, its actions’ effects on the Philippine growth for the next one to two years are outshadowed by the longer-term benefits of their policy normalization.
“The BSP is focused on ensuring sustainable GDP in the longer term, and, thus, pushing for GDP growth to cross the 7-percent mark once again may not be that important in the near term,” DBS Bank said.
The regional banking giant forecasts growth of the country to hit 6.4 percent this year and next year—both below the government’s target for 2014 at 6.5 percent to 7.5 percent and at 7 percent to 8 percent next year.
Current data showed that the GDP grew by 6 percent in the first half of the year.