By Joann Santiago
MANILA, Oct. 22 (PNA) — The Bangko Sentral ng Pilipinas’ (BSP) decision to adjust banks’ minimum capital requirements based on its classification and the number of branches is widely expected to solidify the industry’s strength.
East West Banking Corporation (EastWest Bank) President and Chief Executive Officer Antonio Moncupa Jr. said banks will not have a hard time coping to the latest regulatory announcement of the central bank since “most of the KBs (commercial banks) and UKBs (universal and commercial banks) are already compliant with the new capitalisation rules.”
He also said that “the BSP gave enough time for banks that are not there yet to comply.”
Under the new rules, which will take effect in November 2014, capital requirements will be tiered according to classification and branch network.
For thrift, rural and cooperative banks, the location of its head office and the size of physical network were also considered.
Moncupa said the latest capital adjustment is positive for the country’s financial system “because it further strengthen the industry and cement its position as one of the healthiest banking system in the world.”
“For the country, the stronger balance sheet that will result from higher capital levels puts the banks in a better position to finance the developmental needs of the economy by enhance lending capabilities for both the corporate and household sectors,” he said.
Relatively, the EastWest Bank chief said the additional capital requirement set for systemically important banks or D-SIBs, or those considered to negatively impact the financial system and the economy if these institutions face distress, “is another positive step towards the stability of the banking system.”
“It lessens the moral hazard from the ’too big to fail’ syndrome,” he said.
Central bank’s policy-making Monetary Board (MB) now requires D-SIBs to increase their minimum Common Equity Tier 1 (CET1) ration by 1.5 to 3.5 percentage points depended on which bucket there are classified.
To date, D-SIBs are required to have a CET1 minimum capital requirement of six percent and a capital conservation buffer of 2.5 percent.
Moncupa noted that this new regulation will “put some downward pressure on banks profitability as it limits the ability of big banks to increase their leverage or the proportion of Assets to Equity.”
”It could possibly increase cost of banking services as banks make up for the reduced profitability,” he said.
However, Moncupa said that “on balance I agree with many who hold the view that the trade-off between stability on the one hand and profitability and a little increase in costs of banking services on the other, is well worth taking in favour of stability.”
“They believe that the important thing is sustainable development,” he added. (PNA)