MANILA, Philippines - Capital adjustments resulting from a prompt compliance with Basel 3 norms and local competition are areas that bank executives have to focus on and deal with in 2013, said Nestor Tan, president and chief executive officer of BDO Unibank, Inc. (BDO), on Thursday.
Basel 3 mandates banks around the world to make appropriate capital adjustments as more of their assets are computed on the basis of the market and credit risks they take in the process of lending gain weight.
The global framework recognizes these risks and gives them weight and, thus, the need to put in more capital as risk weight ramps up.
Aurelio R. Montinola III, outgoing president and chief executive officer of the Bank of the Philippine Islands, has said the Basel 3 framework, while not considered a hurdle for local banks, has a direct impact on some large lenders whose portfolio of risk-weighted assets require them to put up more capital.
For regulators like the Bangko Sentral ng Pilipinas (BSP), it is important for banks to adopt Basel 3 norms ahead of the global commitment, while the economy and the banking system are on the upswing.
Tan said the performance of the banking system next year depends on how well stakeholders take the increasingly tough competition, on top of which regulatory changes also have to be factored in.
In recent months, the BSP has kept an eye on the banks’ lending to the real-estate sector as a precautionary step against asset-price inflation.
Low interest rates also determine how banks would fare next year, according to Tan.
As loans become more affordable, businesses and households tend to borrow for consumption purposes, such as buying cars or using credit cards more frequently.
Mortgage lending also tends to ramp up which, if not handled well enough, could lead to asset-price inflation and the bursting of prices later.
Tan said it was good the BSP has indicated it is looking to tweak so-called loan-to-value ratios to make it less attractive for borrowers to advance collateral for a bank loan, hinting broadly of scaling this back from 70 percent to a still-unspecified number.
“It is good for the BSP to monitor the real-estate sector, but [it has] to be careful not to overdo it,” he said, adding that too much regulatory changes could “unnecessarily slow down the economy.”
BDO lending activities, which have averaged in double digits for several years, are likely to sustain the growth, according to Tan. He said his bank’s loans this year were likely to expand “in the mid-teens.”
“Remember, tougher competition has made it more difficult for the banks to post higher loan growth rates,” Tan said.