Regulators vowed on Wednesday to push for still higher capital among banks as insurance against financial headwinds down the line.
But Bangko Sentral ng Pilipinas Deputy Governor Nestor A. Espenilla said they will approach the subject on the basis of reforms more tailor-fitted to individual bank requirement rather than as an aggregate program where the various lenders are left without some form of recourse.
The BSP gave assurance they would look at the individual bank’s compliance with the so-called Basel 3 capital buildup requirement under a more realistic viewpoint.
Espenilla said they are in the process of implementing BSP Circular 854, which prescribes the banks’ minimum capital and Circular 855 that dwells on credit risk management primarily for financial stability.
These pertain to minimum threshold capital known as common equity Tier 1 the banks must observe in addition to the capital adequacy mandate popularly known as capital adequacy ratio (CAR). He quickly acknowledged the challenge is on their execution.
“In these regulations there are transition phase. What’s important to the BSP is to appreciate that the banks themselves are willing to embrace the reform,” Espenilla said at the recent Chamber of Thrift Bank’s (CTB) general membership meeting.
Under Circular 854, the minimum level of CAR is set at 10 percent. “We expect banks to be compliant. We will have to implement it,” he told the BusinessMirror.
“There are those who say today we are not compliant but we will be compliant. Soon, we will get there. What’s important to us is the shareholder’s commitment. So long as [the banks] stick to the agreement of capital buildup, it can be business as usual,” the deputy governor directly supervising the industry said.
“If you are a small bank and have a small business model, your CAR now is 60 percent. If you are required to put in more capital, what will you do for the capital? We just tell you, continue what you do,” he said.
Espenilla said the policy-setting Monetary Board has started assessing situations like that.
“It’s a matter of engaging. We don’t ask you to add more capital if you don’t need it. In most cases, however, you will need it,” he quickly added.
Espenilla said the BSP has made a shift to a more customized supervision of individual banks.
Regulations now require bank supervisors to possess at least two important competencies, good judgment and knowledge.
He said the account officers are tasked with knowing as much as they can about how your banks work. They give advice on how to deal with the new regulatory framework and work on the program of transition to meet the expectation of the BSP. “It’s a partnership dialogue,” he said.
CTB President and RCBC Savings Bank President Rommel Latinazo said the CTB supports the BSP on the implementation of the circulars for a more stable financial system.
“Some of the banks can readily comply but some will not be able to comply that soon. They should have arrangements with the BSP and the BSP said it is prepared to listen and understand their situation, depending on particular items of compliance,” he said.
The role of the CTB is to assist members, help them understand and give timely information. He said what’s important to the industry is Circular 855 on credit-risk management.