Bangko Sentral goes for Basel III standards ahead of global sked

The Bangko Sentral ng Pilipinas (BSP) announced Friday it has decided to implement four years ahead of the 2018 deadline, higher governance and performance standards designed to make sure universal and commercial banks have adequate capital to withstand the impact of financial crises.   January 1, 2014 is the effectivity date of new global benchmarks on capital conversion, common equity Tier 1, and total Tier ratio that will have an impact on banks’ debts and asset positions.   The Basel III accord spells out these international standards, which are also similar to the measures international credit rating agencies, such as Fitch Ratings and Standard & Poor’s, use to assess the creditworthiness of sovereign and commercial borrowers.   "Now is the perfect time to introduce reforms. Our banks are doing pretty well and they could further shore up their capitalization," said BSP Deputy Governor Nestor Espenilla.   Last Dec. 6, Fitch Ratings assessed Philippine banks as stable on the whole, as “stress tests” revealed that “core Tier 1 capital adequacy ratio (CAR)” of all rated banks is likely to remain at around 11 percent on average with the weakest banks not falling lower than 8 percent.   "This compares with an average core Tier 1 CAR of about 13 percent at end-September 2011, and reflects the sound capitalization of most major banks,” according to Fitch.   The BSP will consult the banks within the first quarter of 2012 for their inputs on the guidelines that are expected to be final by the third quarter —which gives the banks a year and a few months before the new benchmarks take effect, Espenilla noted.   The old and new capital adequacy guidelines will run parallel in 2013 and then the old will give way to the new at the start of 2014, he explained.   "With the new roadmap, the BSP has again set the local bar higher than the minimum international standard," Espenilla added.   The new capital conversion buffer is 2.5 percent higher than the minimum, and the common equity Tier ratio will be pegged at 6 percent, or 1.5 percentage points above the 4.5 percent standard. The total Tier ratio will be fixed at 7.5 percent — also 1.5 percentage points over the 6 percent reference.   BSP Governor Amando Tetangco Jr. noted the Basel III reforms will protect banks, their clients and the country against “potential systemic risks” in a financial sector environment that is increasingly becoming globally intertwined.   "In the end, it's the public that benefits from better financial governance and strengthened risk management," Tetangco said.   A different set of measures will be applied to stand alone thrift banks, rural banks and cooperative banks, according to the Bangko Sentral. — ELR/VS, GMA News