BSP may scrap last stage of capital hike for banks

The Bangko Sentral ng Pilipinas (BSP) may no longer require banks from complying with a higher capitalization set to take effect on Dec. 31, 2000, the last phase of the three-part capital hike implemented by the central bank in 1997, BSP Gov. Rafael Buenaventura said yesterday.

"We are open to deferring it or totally forgetting about it if we shift to the BIS definition for measuring capital adequacy," he said.

Buenaventura said this was already discussed with the 52 commercial banks belonging to the Bankers Association of the Philippines in a meeting yesterday,. He said he would bring this up with the Chamber of Thrift Banks soon.

The BI refers to the Bank for International Settlement, the regulator of all central banks in the world. It has drafted standards for the definition of capital based on the assets of a bank that are deemed risky during its convention in Basle, Switzerland. Such rules, now being adopted by various central banks worldwide, is known as the Basle framework.

However, adopting the Basle framework in the Philippines requires changes in the banking laws. With the signing of the amendments to the General Banking Act or the General Banking Law of 2000 by the President yesterday, the BSP can now allow banks to adopt such rules.

Unlike the country's definition of risk assets relating to capital, the BIS has less stringent rules. For instance, the country's net worth to risk asset is pegged at 10 percent with all assets (excluding government securities) considered risky.

The BIS, on the other hand, has adopted a graduated approach ranging from 10 percent upwards depending on the type of assets being considered or defined as risky.

Buenaventura said banks would also raise capital through the issuance of debt papers to comply with the higher capital requirement under the new law. Previously banks could only increase capital through the issuance of common or preferred shares.

Right after the July 1997 Asian currency crisis, the BSP under former governor Gabriel Singson implemented a capital increase that was implemented in three stages, that is, Dec. 24, 1998, Dec. 31, 1999, and Dec. 31, 2000.

While most banks easily complied with the capital hikes in 1998 and 1999, some banks now have a hard time complying with the requirement for this year. These banks face the risk of a downgrade in their operating license or monetary penalties.

For example, Urban Bank has requested for a downgrade in its license from commercial bank to thrift bank since it could not meet the higher capital requirement for this year. Reports of a downgrade caused its depositors to panic resulting in massive withdrawals. The bank was eventually closed.

By the end of this year, capital for universal banks would go up to P5.4 billion from P4.95 billion. For ordinary commercial banks, it would go up to P2.8 billion from P2.4 billion. For thrift banks based in Metro Manila, it would rise to P400 million from P325 million, while those outside of it, it would increase to P64 million from P52 million.