BPI takes steps toward early adoption of Basel 3 standards

Ayala-led Bank of the Philippine Islands is taking steps toward the early adoption of stringent capital adequacy ratio (CAR) requirements under the Basel 3 global framework, according to BPI chairman Jaime Augusto Zobel de Ayala.

“Even with our strong capital base, we have taken the first steps to consider the early adoption of Basel 3 rules as announced by the Bangko Sentral ng Pilipinas, another step to strengthen our overall capital adequacy under the new global standards,” said Zobel in a report to stockholders last week.

Universal and commercial banks are required by the BSP to adopt by Jan. 1, 2014, the capital adequacy standards under Basel 3, which introduces a complex package of reforms designed to improve the ability of banks to absorb losses, extend the coverage of financial risks and have stronger firewalls against periods of stress.

Based on the BSP’s proposal under Basel 3, the minimum CAR must be raised from 10 to 12.5 percent.

“We submitted our final Internal Capital Adequacy Assessment Process (ICAAP) document for 2011 to the BSP and an internal minimum capital adequacy ratio of 10.25 percent was defined to include risks other than credit, market and operational risks,” Zobel de Ayala said.

“A management action trigger (MAT) of 11 percent, 100 basis points over the required minimum, was set to prompt the bank to take the proper action to always ensure an adequate level of capital,” he said.

To date, BPI has a CAR of almost 15 percent. Counting only the tier 1 or core capital, the ratio is at 13.1 percent.

Based on its ICAAP, BPI president Aurelio Montinola III said the bank was projecting a 12 percent increase in lending in the next three years, which meant that no fresh capital would be needed until 2015.

“The other way to put it is by making good profits. Even if we dividend out (stocks), that’s the cheapest way of raising capital without going to the markets,” Montinola said.