The Market Monitor Minding the Nation's Business
By Riza Lozada
BDO Unibank Inc. (BDO) seeks to raise up to P60 billion in additional core capital through a stock rights offer to finance the bank’s medium-term growth plans and provide a buffer on higher capital requirements imposed by the Bangko Sentral ng Pilipinas (BSP).
The stock offer entitlement ratio amounts to an approximate proportion of one share for every five existing shares.
The shares to be offered are placed at 800,000,000.
The shares to be offered pertains to the maximum number of shares that may be offered and is still subject to final adjustments, BDO noted.
The start of offer period is on January 16, 2017, and ends on January 24.
BDO reported that the BSP had cleared the proposed float last November 23.
The BDO board approved its stock offer plan last September 24, 2016.
The proceeds from the stock rights offer will support the BDO’s medium-term growth objectives amid the country’s favorable macroeconomic prospects and provide a comfortable buffer over higher capital requirements with the forthcoming imposition of the Domestic Systemically Important Bank (DSIB) surcharge.
The additional capital will also allow BDO to sustain its momentum and take advantage of the country’s growth opportunities.
The BSP completed in July 2015 its determination of domestic systemically important banks (D-SIBs) based on a framework released in 2014 classifying the banks depending on the extent of their systemic importance using pre-defined indicators for size, interconnectedness, substitutability and market reliance as a financial market infrastructure as well as complexity.
According to the BSP, the D-SIBs framework conforms with the initiatives pursued under the Basel 3 reform agenda.
D-SIBs are characterized as banks which may affect the wider financial system and economy once it becomes distressed.
The BSP noted that it will update the list of D-SIBs every year and each bank will be individually notified of their classification.
Those identified as D-SIBs will be required to maintain additional Common Equity Tier 1 (CET1) of between 150 and 250 basis points of the bank’s Risk-Weighted Assets. The higher capital requirements, however, will be staggered beginning January 2017 until the same are fully in place by January 2019.
D-SIBs must also meet higher supervisory expectations. For example, in the annual submission of their ICAAP document (Internal Capital Adequacy Assessment Process), D-SIBS must have in place acceptable recovery plans which will be carried out in the event of breaches in capital requirements.
BSP Governor Amando Tetangco, Jr. noted that “the higher bar for D-SIBs in terms of capital requirement and supervisory expectations serves to strengthen the system by lowering the probability of systemic bank failures”.
Tetangco reiterated that the banking system remains in a strong position and that the D-SIBs guidelines are “pro-active measures to sustain such strength”. He added that the higher minimum CET1 threshold would not be disruptive since “our internal simulations affirm that a reasonable earnings retention program would be sufficient to bring the capital level of D-SIBs within the required threshold.”