MANILA - Philippine banks' move to increase and improve the quality of their capital is credit positive, Moody's Investors Service said yesterday.
The efforts of local lenders were in compliance with stricter requirements implemented by the Bangko Sentral ng Pilipinas starting January this year in line with the introduction of international regulatory framework for banks or Basel III.
“In contrast to the gradual phase-in approach adopted by most other countries, the Philippine regulator, Bangko Sentral ng Pilipinas has implemented the new capital requirements with full effect from Jan. 1, 2014,” Alka Anbarasu, Moody’s assistant vice president and analyst, said.
Basel III is a set of reform measures for strengthening regulation, supervision and risk management of banks. Part of the reforms require banks to beef up their capital, maintain stricter leverage ratio and also keep minimum liquidity standards.
In January, the BSP required universal and commercial banks to have a minimum Tier 1 capital of 7.5 percent, a minimum common equity Tier 1 ratio of six percent, and a capital conservation buffer of 2.5 percent. The capital adequacy ratio, meanwhile, has been kept at 10 percent.
“In response to the measures, Philippine banks have improved their capital structure, a trend Moody’s expects to continue in the near future,” the rating agency said.
In order to raise capital and improve its quality, local banks have issued securities, sold stakes in non-core businesses, retired non-compliant securities, and modified some of the terms of their current capital securities to make these Basel III compliant, Moody’s said.
“We also expect Philippine banks to continue to grow at a rate of up to 15 percent annually over the coming years, as their ongoing capital raising initiatives will allow them to do so without compromising their credit profiles and loss-absorbing buffers,” Anbarasu said.
“Philippine banks are well capitalized by international standards, and we estimate that our rated banks can maintain CARs (capital adequacy ratio) above 10 percent through end-2015, even after assuming 15 percent loan growth in both 2014 and 2015,” the analyst added.
Moody’s said that despite seeing local banks being well-capitalized until 2015 even without further capital raising efforts, it expects lenders to issue Basel-III compliant securities during the period.
The debt watcher noted “such issuance is likely to occur as banks will gauge the buffer they want to maintain above the minimum requirements, their anticipated growth rate and cost of funds considerations.”
Philippine banks’ strong capital structure are in line with other banks in Southeast Asia, Moody’s noted in a separate report.
The rating agency said that it expects most banks in the Association of Southeast Asian Nations member countries and in India to maintain higher and better quality capital as compared to other lenders globally.
“However, significant differences exist in the specific rules across the jurisdictions, and these are important to understand when assessing and comparing banking systems and individual banks,” Jean-Francois Tremblay, Associate Managing Director at Moody’s, said.
Moody’s said that most of the banks in the region have been found ready to meet stricter rules on capital.
“In terms of capitalization, most Asean banks are well positioned to meet the new Basel III capital requirements,” the debt watcher said.