New capital rules seen too taxing for banks
Additional capital requirements announced by regulators this week may prove to be a burden for the country’s largest banks, whose shareholders would have to fork out more cash to meet regulatory requirements and support expansion plans.
Brokerage firm Maybank ATR KimEng on Thursday said the capital buffers approved by the Bangko Sentral ng Pilipinas (BSP) for banks that were “too big to fail” were higher-than-expected.
In a note to clients, the firm said local banks had already been raising their capitalization levels in the last three years to meet the already-strict prescriptions by the BSP.
“However, these may not be enough to meet the required increase as well as support their growth strategies,” Maybank ATR KimEng said.
Under the new rules, the banks would be classified into various buckets. Those at the top would have to set aside an extra 3.5 percentage points of common tier-1 capital. This would be on top of the minimum 6 percent tier 1 capital already required of major banks. These banks are also required to set aside another 2.5 percentage points of capital as a conservation buffer.
Rules on domestic systemically important banks (D-SIBs) are in line with recent Basel III rules being put in place worldwide to avoid a repeat of the global financial meltdown in 2008.
By forcing large banks to set aside higher levels of capital, regulators hope to remove the “moral hazard” of government bailouts for lenders that take advantage of loose regulations to take excessive risks, which lead to a buildup of toxic assets.
The banks’ capital levels, measured relative to the amount of risk-weighted assets they hold, are required by regulators. Capital serves as buffer for potential losses. Hence, the size of a bank’s loan portfolio is restricted by the amount of capital it has.
“Although it is hard to speculate which in our banking universe will be most affected given the lack of details, we believe most banks may have to raise capital again starting next year. We shall monitor developments on this front,” Maybank said.
Maybank said the capitalization of the country’s top three banks—BDO Unibank, Metropolitan Bank & Trust Co., and Bank of the Philippine Islands—would either be at the threshold or below it, once the new BSP rules take effect.
