MAJOR banks will remain active in financial markets in the coming years as they raise more capital to meet more stringent requirements for institutions considered “too big to fail.”
Early simulations by regulators showed several domestic systemically important banks (DSIB) still fall short of new minimums set by the international community.
Fortunately, these new rules will take effect in 2019, giving local banks four more years to catch up.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said local banks remain profitable, giving them the option to use these earnings for capital buildup. Shareholders have also been more than willing to fork out money to support banks, as recent stock rights offerings have shown.
“As a result of profitable operations and strong market access, the BSP expects DSIBs to easily hurdle tougher capital standards in accordance with the prescribed timeline,” Tetangco told reporters in an email.
Last year, the BSP issued tougher rules on DSIBs, which are defined as lenders so big that their closure would cripple the local economy. These banks were told to set aside more capital to cover for the extra risk their size entailed.
The BSP said it conducted internal simulations using December 2013 and March 2014 data to test policy that will be fully implemented only in 2019, similar to the global timeline. Four of the 14 banks that may be considered DSIBs were found to not have enough capital under the new rules. Identities of DSIBs have not been made public.
“Factually then, such banks cannot be deemed today to be failing against a higher threshold that will not be effective until nearly four years from now,” Tetangco said.
Over the past year, the country’s major banks have raised record amounts of capital to meet tougher regulations, and to support expansion plans. A bank’s level of capital is used as a buffer for potential losses.
At the end of September last year —the latest data available—universal and commercial banks’ level of capital stood at the equivalent of 16.3 percent of their risk-weighted assets. This was well above the 10-percent minimum set by the BSP.
Last year, Bank of the Philippine Islands (BPI) raised P20 billion in additional capital through a stock rights offering, which gave existing shareholders a chance to increase their holdings. At the time, the BPI transaction was highest on record for any bank.
The record was broken earlier this year with Metropolitan Bank & Trust Co.’s own stock rights offering, which raised P32 billion for the company.