Some of the banks need to raise additional capital next year to remain competitive, according to the research arm of Maybank ATR Kim Eng.
Maybank ATR analyst Katherine Tan said while banks have been strengthening their capital ratios the past three years, this may not have been enough to meet the required level to fund their growth strategies.
Maybank ATR said the increase in so-called domestic systemically important banks’ (D-SIBs) minimum common equity Tier 1 (CET1) ratio has been set higher from 1.5 percentage points to 3.5 percentage points.
This was on top of the existing CET1 ratio of 8.5 percent, which includes a capital conservation buffer of 2.5 percent.
“We were expecting implementation of higher capital requirements by the Bangko Sentral ng Pilipinas [BSP] but the range of 1.5 percentage points to 3.5 percentage-points is higher than expected. At the maximum level, this means the CET 1 ratio could reach 12.0 percent.
Maybank ATR analyst said if applied to the top 3 banks by assets, there is a high possibility that BDO Unibank Inc., the Metropolitan Bank and Trust Co. (Metrobank) and the Bank of the Philippine Islands will increase their capital as parent lenders.
Based on Maybank ATR Kim Eng estimates, as of end-June 2014, China Banking Corp.’s CET 1 parent and CET 1 consolidated is 16.13 percent and 14.78 percent, respectively.
BPI’s CET 1 parent and CET 1 consolidated were 13.43 percent and 14.52 percent respectively. Union Bank of the Philippines has 12.48 percent, 12.39 percent.
Maybank ATR’s top pick for banks, Security Bank Corporation, has 12.43 percent and 13.24 percent.
Rizal Commercial Banking Corporation (RCBC) 9.96 percent and 10.91 percent; EastWest Bank 10.76 percent and 10.88 percent and Metrobank 10.35 percent and 12.12 percent, CET 1 parent and CET 1 consolidated respectively.
Philippine National Bank (PNB)’s CET 1 parent is 12.42 percent and CET 1 consolidated is 15.51 percent while BDO has 11.62 percent and 13.08 percent at end -June this year.
As of end September, BDO continues to be well-capitalized with a consolidated capital adequacy ratio (CAR) of 14.1 percent and common equity tier 1 (CET 1) ratio of 12.7 percent under the current Basel III environment.
Maybank ATR said falling below the capital ratios will limit the banks’ authority to pay their shareholders dividends. The incremental CET1 should be in place by 1 January 2019 through a phased-in approach starting 1 January 2017.
The BSP will inform banks confidentially of their D-SIB status in mid-2015. –