Banks told to build up defenses

THE CENTRAL BANK unveiled on Monday fresh measures to further strengthen the Philippine banking system, including a directive for lenders to boost capital gradually and cap the value of real estate that can be used as loan collateral.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said its policy-making Monetary Board has approved a higher minimum capital for banks and new rules governing loan collateral.

Under the new rules, universal banks — the biggest lenders — need to have capital of at least P20 billion if they have more than 100 branches. That’s a four-fold increase from the current minimum capital of P4.95 billion.

Smaller lenders — the commercial, thrift, and rural banks as well as cooperatives — were also told to beef up their balance sheet.

How much more lenders need to raise depends on their size: the more branches they put up, the more capital they must hold, the central bank said.

“Minimum capitalization increases in tiers as the branch network gets bigger,” the BSP said in the statement.

The new rules are “in line with the efforts of the Bangko Sentral ng Pilipinas to further strengthen the banking system,” noting that the last adjustments were made in 1999 for big lenders, and in 2010 and 2011, for thrift and rural banks, respectively.

The adjustments also come ahead of Southeast Asia’s integration next year, when more foreign banks are expected to enter the Philippine market.

The new requirements are separate from the tighter capital rules under the so-called Basel 3 reforms, the central bank said.

“Moreover, infusing additional capital to domestic banks will put the Philippines in a better position when the ASEAN (Association of Southeast Asian Nations) Banking Integration Framework is implemented in the coming years,” it added.

Existing banks, the BSP noted, have five years to comply with the higher minimum capital requirement, but they will have to submit a capital build-up program.

Failure to do so, or failure to comply with the increased levels, will result in the curtailment of future expansion plans, the BSP said.

Sought for comment, Bankers Association of the Philippines President Lorenzo V. Tan, in a text message, said: “The increase in banks’ minimum capitalization is consistent with the increase in the total assets of the banking industry over the past 15 years.”

“The move, we believe, is meant to strengthen the banking industry’s capital base and promote consolidation, and in preparation for the ASEAN integration in 2015,” he said.

For his part, Rural Bankers Association of the Philippines President Jose Misael B. Moraleda said: “The minimum capital increase… is reasonable per consultation with our members. This move will be good for the industry.”

In a separate statement, the central bank said the Monetary Board enhanced regulations governing credit risk-taking of banks and quasi-banks “to fundamentally strengthen credit risk management in these financial institutions…”

BSP said value of real estate that can be used as collateral should be limited to 60%. The levels currently average 80% to as high as 90% for low-cost homes.

Explaining the rationale behind the move, the BSP chief said it encourages banks to lend to customers who are creditworthy but do not have collateral like real estate.

The central bank clarified the cap on mortgage collateral is different from the loan-to-value ratio limit — another measure used in assessing when borrowers qualify for a mortgage.

“By discouraging obsession with collateral, the new regulations promote better access to credit by those who are not necessarily collateral-heavy but do have the ability to pay from business operations or other regular cash flows,” BSP Governor Amando M. Tetangco, Jr. said in an e-mail to reporters.

All banks and quasi-banks have also been directed to reassess their internal credit risk rating systems such that they match the nature, size, and complexity of their lending activities.

Among other measures disclosed yesterday: banks were told to be more prudent in lending to subsidiaries and affiliates.

“Banks are expected to generally observe a lower internal single borrower’s limit (SBL) than the prescribed limit of twenty-five percent (25%) of the bank’s net worth as a matter of sound practice,” the BSP statement read.

BSP said banks have six months to devise an action plan and up to two years to comply with the new rules. — reports from Daryll Edisonn D. Saclag and Bloomberg