MANILA, Philippines - More fundraising activities are expected from banks this year as they continue to beef up their capital to keep up with the regulator’s stringent rules and to further grow their businesses, a Standard Chartered Bank official said.
“We continue to see bank issuers look at the capital markets… to raise (capital from) Tier 2 (instruments) and there are also some institutions looking at additional Tier 1 (issuances),” Lynette Ortiz, managing director and head of global markets at Standard Chartered Bank in Manila, said during a Latham & Watkins forum yesterday.
According to Ortiz, banks in the past two years have been raising more funds to comply with the stricter Basel III requirements, which raised capital ratios for the universal and commercial banks.
“I think the first order of business was to get core equity Tier 1 capital strengthened so the banks went to equity capital markets for rights issues,” Ortiz said.
“A number of Tier 2 issues were also derecognized and what happened then was we had to work with a number of banks to put together Tier 2 securities that are Basel III compliant,” she said.
The new capital rules took effect Jan. 1 of last year and these increased the minimum Tier 1 capital to 7.5 percent, the minimum common equity Tier 1 ratio to six percent, and introduced a capital conservation buffer of 2.5 percent. The capital adequacy ratio, meanwhile, has been kept at 10 percent.
Banks then retired their notes that are non-compliant with the new standards and started issuing papers qualifying as capital under the Basel III.
Ortiz said that during 2013 and 2014, Tier 2 issues that were Basel III compliant amounted close to P80 billion, and were “very well-received” by investors.
She noted that given the sufficient liquidity in the domestic financial system, issuers have been tapping the peso market first before looking elsewhere.
“There are other ideas the local banks can consider but clearly, there’s still a lot of liquidity onshore, hence, the first option is raising capital onshore,” Ortiz stressed.