The local banking system could reap long-term benefits from the wave of reforms the regulators have rolled out in recent months but could have a tough time meeting the higher and more stringent capital mandates.
Analysts at Maybank particularly said compliance to the more immediate capital measures should prove problematic.
On the capital reform measures, Maybank ATR Kim Eng said both big and small lenders could have a hard time meeting the new minimum capital mandates and the corollary order for so-called systemically important banks to inflate their buffer or reserve funds as manifested by their common equity Tier 1 (CET1) ratio.
Going forward, all banks must observe substantially higher minimum capital designed to sustain their continued existence in the face of more stringent regional or even global competition. Because some of these banks are considered too important and too big for the economy such that their failure could have far-reaching and unpredictable consequences, further fortification measures were likewise instituted to address vulnerable areas.
Maybank said that in the case of strengthening systemically important banks, the Bangko Sentral ng Pilipinas’s (BSP) required capital buildup was “higher than expected.”
Applied to the top three banks in the country, BDO Unibank Inc., Metrobank and Bank of the Philippine Islands (BPI) will need to increase their CET1 ratios to lower or near the new threshold by the BSP based on the data as of end-June this year, according to Maybank.
“Banks have been strengthening their capital ratios in the last three years and have buffers of 4 to 5 percentage points. However, these may not be enough to meet the required increase, as well as support their growth strategies,” Maybank said.
Maybank also said the big banks will “easily meet the new capital requirement” as they have already raised their respective capital bases in accordance with Basel 3 guidelines.
“Of 21 universal and 15 commercial banks, we identified two non-listed local banks that might need to increase capital to meet the new condition,” Maybank said.
“Existing foreign banks and those keen to open Philippine branches also have to comply,” the bank added.
Thrift banks, meanwhile, were seen having a harder time complying. In particular, 44 thrift banks should not be able to comply immediately based on their reported capital as of end-March this year, according to Maybank.
“These are mostly stand-alone banks not affiliated with a bigger bank and will have to raise additional capital themselves,” Maybank said.
Aside from the long-term returns of the new reforms, Maybank also said these will spur more consolidations in the industry.