BSP hikes minimum capital for banks

The Bangko Sentral ng Pilipinas (BSP) on Monday announced it was hiking the minimum capital requirement for all banks to strengthen the banking system after the Philippine government allowed more foreign banks operate in the Philippines.

The move was also in preparation for the regional financial integration among members of the Association of Southeast Asian Nations (ASEAN).

 

The Monetary Board raised the minimum capital requirement for all bank categories namely universal, commercial, thrift, rural, and cooperative banks, the central bank said in a statement.

 

"The MB adjusted the level of the required minimum capital to ensure that banks stand on a strong capital base to support a threshold scale of operations to operate viably and service effectively the needs of their clients," the BSP said.

 

"Asset growth, increasing complexity, technological innovations, liberalization of foreign bank entry, the opening of rural banks to foreign investments, and the upcoming regional banking integration were considered in adjusting the minimum capitalization of banks," it added.

 

Last July, President Benigno Aquino III signed into law Republic Act No. 10641 or the Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines. The measure allows more foreign banks operate and without restrictions in the Philippines' financial system.

 

Meanwhile, the ASEAN Banking Integration Framework mandates equal opportunities for Southeast Asian banks operating within the 10-nation bloc by 2020.

 

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

 

Under the new regulation, the bigger the universal or commercial bank is in terms of branches, the bigger capital is required.

 

"Minimum capitalization increases in tiers as the branch network gets bigger," the BSP said.

 

For thrift, rural and cooperative banks, location of the head office and size of the physical network are considered in categorizing the minimum capital requirements, the central bank said.

 

 

Non-compliant banks—including those which are newly authorized but not yet operating—will have to meet the minimum capital requirement within a five-year transition period.

 

These banks will be required to submit an acceptable capital build-up program.

 

But banks that fail to comply within the time period or propose an acceptable capital build-up will face difficulties in expanding their network.

 

The move to update domestic regulatory standards is consistent with global efforts to enhance bank regulation given the ever-changing risks faced by the banking sector, the BSP said.

 

"Well-capitalized domestic banks promote financial stability and effective delivery of financial services. Moreover, infusing additional capital to domestic banks will put the Philippines in a better position when the ASEAN Banking Integration Framework is implemented in the coming years," it added. 

 

The minimum capital requirement for universal and commercial banks were last tweaked in 1999 while that of thrift and rural banks’ were last increased in 2010 and 2011, respectively.

 

The upward revision in minimum capital levels is a separate requirement from compliance with risk-based capital adequacy ratios in accordance with Basel 3 requirements, which was implemented by the BSP at the start of 2014. —NB, GMA News