East West Bank plans to beef up its capital by as much as P10 billion to prepare the bank for future growth amid stiffer capital adequacy requirements under Basel 3.
In a disclosure to the Philippine Stock Exchange Friday, EW said its board had given the authority for the bank to issue Basel 3-compliant securities in one or more tranches.
In a phone interview, East West bank president Antonio Moncupa Jr. said the first tranche of offering might take place before the first quarter of 2014. He added that the bank’s preferred shares issuance worth up to P5 billion would likely be pursued ahead of the Basel 3 -compliant securities offering.
“This is growth capital rather than capital growth for compliance,” Moncupa said, adding that East West was already compliant with Basel 3 requirements even without the new issuance.
Universal and commercial banks are required by the BSP to adopt by January 2014 the capital adequacy standards under Basel 3, which introduces a complex package of reforms designed to improve the ability of bank capital to absorb losses, extend the coverage of financial risks and have a stronger firewall during periods of stress.
A provision under Basel 3 calls for a higher proportion of bank capital that is represented by common equity. Under the BSP framework, common equity tier 1 ratio will be set at a regulatory minimum of 6 percent while the total tier 1 ratio should at least be 7.5 percent. Total Tier 1 capital is made up of common equity and other eligible securities.
Moncupa said East West Bank’s common equity tier 1 ratio was already at 13.13 percent at present. However, he said the bank would like to gain more leeway to expand risk assets in the future.
Under the Basel 2 regime, several banks supplemented their core capital with subordinated debt qualifying as tier 2 capital, which will no longer be allowed under Basel 3. Doris C. Dumlao