Basel 3 leverage ratio credit positive for PH – Moody’s

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Moody’s Investors Service said the Philippine central bank’s adoption of the stiffer Basel 3 leverage ratio for local banks is credit-positive for local banks.

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“The higher minimum leverage ratio (together with stricter Basel III minimum capital requirements established in 2014) is credit-positive for Philippine banks because it would require them to hold more capital, making them more resistant to losses,” the ratings firm stated in its Credit Outlook report published Thursday.

“The stricter norms will also prevent excess credit and asset growth in the system and come as Philippine banks’ assets (both on and off-balance sheet) are growing at an annual rate of 15 percent or more,” Moody’s added.

The Bangko Sentral ng Pilipinas (BSP) last week announced its adoption of the Basel III leverage ratio framework for universal and commercial banks, which measures how much capital banks should have to cover assets not weighted according to the risk they carry.

Under the framework, Philippine banks will be required to have a minimum leverage ratio of 5 percent, versus the 3 percent recommended by the Basel Committee and as adopted by many regulators in the region.

The BSP requires Philippine banks to comply with the guidelines by January 1, 2017, even as the Basel Committee recommends compliance by January 1, 2018.

Until December 31, 2016, banks can monitor their leverage ratio and the BSP will not impose penalties on banks whose ratios fall below the 5 percent minimum.

Moody’s said disclosure standards will also improve and become more consistent among banks.

The ratings agency expects that all rated Philippine banks will meet the higher minimum leverage requirements, noting that most of its rated banks in the country have a Tier-1 ratio above 5 percent.

However, it pointed out that the Land Bank of the Philippines and the United Coconut Planters Bank, both state-owned, have the weakest leverage ratios among the banks rated by Moody’s and both will need to manage asset growth in the absence of any additional capital infusion from the government.

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