Banks in the Philippines and other countries in the Association of Southeast Asian Nations (Asean) region are well placed to comply with stricter capital and liquidity requirements under Basel III, Moody’s Investors Service said in an analysis.
The Philippines is even considered an exception to the capital conservation buffer (CCB) requirement given that such measure is already fully implemented in the country, Moody’s said.
“Based on our preliminary assessment, over the next 12-18 months, rated banks in the Asean region, are well-capitalized to meet the higher minimum capital requirements under Basel III, even after taking into account the additional buffers and credit growth,” the ratings agency said in its just-released presentation titled “Asean Banks Well Placed for Basel III Capital and Liquidity Ratio Compliance.”
Besides the Philippines, the presentation also talks about other Asean countries such as Indonesia, Malaysia, Singapore, Thailand, and Vietnam.
“Banks in Singapore and the Philippines are subject to higher minimum requirements for CET1 [Common Equity Tier 1] T1 and total CAR [capital adequacy ratio]compared to Basel Committee recommendation,” the analysis as contained in the presentation authored by senior analyst and Vice President Alka Anbarasu.
Since 2014, the Bangko Sentral ng Pilipinas (BSP) has ordered universal and commercial banks in the Philippines to comply with Basel III’s 10 percent capital adequacy ratio standards with Tier 1 common equity and Tier 1 capital ratios of 6 percent and 7.5 percent, respectively.
On the capital conservation buffer, the ratings agency explained that it is set at 2.5 percent, and is intended to ensure that banks build up capital buffers above regulatory minimums outside periods of stress. The CCB will comprise of CET1 capital of banks.
“While complying with the CCB is not a regulatory minimum, we expect banks in the region will not want to impair their ability to pay dividends.
Hence, we expect banks will seek to maintain minimum CET1 level, including the CCB,” it said.
Moody’s noted that banks in Singapore and the Philippines will also need to maintain minimum CET1 ratios of 9 percent and 8.5 percent, respectively.
On the other hand, banks in other countries will need to maintain minimum CET1 ratios of 7 percent.
Moody’s expects regulators in the region will announce by the end of 2015 the list of domestic systemically important banks (D-SIB) in their respective banking systems.
Seven banks in Singapore—three local and four foreign—have already been identified as systemically important.
In the Philippines, the BSP has required D-SIBs to increase their CET1 ratios. The higher ratio for the minimum CET1 will be on top of the existing CET1 minimum of 6 percent and the capital conservation buffer of 2.5 percent.
The BSP said it will inform each bank of its status in terms of D-SIB classification by mid-2015 but the information will not be made public.