The Market Monitor Minding the Nation's Business
By Jerry Maglunog
The Bangko Sentral ng Pilipinas (BSP) has imposed stricter capital requirements on 10 of the country’s biggest universal and commercial banks, called domestic systemically important banks (DSIB) or those deemed too big to fail, requiring them to increase their capital adequacy ratio (CAR) to between 1.5 percent and 2.5 percent.
The central bank, however, refused to identify the DSIB.
No official reason was cited, but naming them would give them undue advantage over other banks, according to sources. Because of their strategic importance to the banking system, DSIBs are guaranteed “rescue” by the BSP in times of trouble, such as bank runs, since allowing any DSIB to collapse would inevitably affect the country’s banking system.
This BSP “guarantee” gives virtual invincibility to the DSIB, which could serve as an attraction to depositors. But it also opens them to moral hazards, like backing up even the unsound banking practices of some banks.
The classification of DSIB is one of the components of Basel 3, the global banking reform that aims to prevent the recurrence of financial turmoil by imposing stricter capitalization levels on banks.
The Bankers Association of the Philippines (BAP) hasn’t issued a stand regarding the DSIB, especially on the additional capital.
BAP President Lorenzo Tan, president and chief executive officer of Rizal Commercial Banking Corp., said whether the BAP classifies DSIB entities based on assets or risk assets, the lineup is the same.
Being a DSIB simply means: being strong will make the regulator of banks let the top 10 banks increase their common equity tier (CET) 1, the banks’ main strength against risk. Tan sees no problem with it.
In an e-mail reply to The Market Monitor, Tan said no when asked if meeting the conditions for DSIB entities are considered tough. Other bank officials have said the opposite on the BSP’s latest ruling on the DSIB that put additional buffer capitals over the already imposed 10-percent regular CAR.
After the additional 1.5 percent to 2.5 percent to the 10-percent CAR, all DSIB now have 11.5 percent to 12.5 percent minimum CET1. “The banking industry has enough leeway to comply with this new BSP regulation on additional CET1 banks considered as DSIB,” Tan said.
Under the latest ruling, all the 33 universal and commercial banks (UKBs) and their thrift-bank affiliates must maintain minimum CET1 ratio of 3.5 percent based on the bucket they’re in.
The tougher requirement is on top of the existing CET1 minimum of 6 percent and a capital conservation buffer of 2.5 percent. Since Basel 3 started in the Philippines in January 2013, the BSP hasn’t made public the bucket- grouping it made among the country’s biggest banks.
“However, it is better to consider this on a perbank basis, especially the country’s biggest banks,” Tan added.
Based on assets, RCBC is the fifth-biggest, with an asset of almost half a trillion pesos (prior to the merger of PNB and Allied Bank).
Other banks in the Top Five, assets-wise, are Banco de Oro (BDO), P1.6 trillion; Metrobank, P1.4 trillion, Bank of the Philippine Islands (BPI), P1.1 trillion; and Land Bank of the Philippines, P790 billion.
Tan said it is not yet too late for banks that are having hard time to meet the alleged tough ruling of the BSP.
“Some of the country’s biggest banks considered DSIBs could still do further capital raising while others may be encouraged to enter into M&As (mergers and acquisitions) to comply with this new BSP regulation that could eventually lead to a stronger banking system and ensure greater protection to the depositing public,” he said.
However, many times the BSP has measured the strength of the UKBs through assets. Although it didn’t say how it was able to come to a point about DSIB, the top 10 banks are really strong, assets-wise.
“Our increase is 1.5 percent and we’re OK,” said Eduardo Olbes, executive vice president of Security Bank.
Security Bank has over P400 billion in assets and is currently No. 7 among the biggest unibanks in the country.
Without naming the 10 too-big-to-fail banks, the top 10 UKBs in assets are BDO, Metrobank and BPI.
These three banks have over P1.3-trillion assets each. Nos. 4 to 7 are Landbank, Philippine National Bank, RCBC and Security Bank, all with assets of no less than P400 billion.
Eighth to 10th UKBs are Unionbank, United Coconut Planters Bank and EastWest Bank, all with no less than P200 billion in assets.
With the 14 of the 33 members of the BAP are now considered DSIB, it is unclear what the status is of the 19 other smaller UKBs, with assets between P57 billion and P150 billion.