PH banks ‘well positioned’ to meet Basel III

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Philippine banks are likely to meet the capitalization requirements of Basel III Accord upon its implementation early next year, according to a report recently released by credit-ratings agency Moody’s Investors Service.

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In the report titled “Banking System Outlook: Philippines,” Moody’s said that the banks continue to be “well-positioned” to meet the new Basel III requirements coming into effect on January 1, 2014.

Under the Basel III, banks must meet specific minimum thresholds for so-called Common Equity Tier 1 (CET1) capital and Tier 1 (T1) capital in addition to the Capital Adequacy Ratio (CAR). These regulatory thresholds effectively move banks worldwide to rely more on core capital instruments like CET1 and T1 issues.

The Bangko Sentral ng Pilipinas maintained the minimum CAR at 10.0 percent. In addition to CAR, the new framework sets a CET1 ratio of at least 6 percent and the Tier I capital ratio is at a minimum of 7.5 percent. The new guidelines also introduce a capital conservation buffer of 2.5 percent, which shall be made up of CET1 capital.

Meanwhile, Moody’s said that the Philippine banks are “among the strongest of banks globally.”

It noted that the banks are likely to maintain liquidity profiles, given that they are fully funded by customer deposits, reducing the need to borrow from the wholesale market.

The debt-watcher cited the low loan-to-deposit ratio of the country’s banking system, which was recorded at 59 percent at end-September 2013.

It added that the banks have also maintained a large proportion of total assets in liquid assets such as cash and local government securities.

In terms of foreign-currency liquidity, the credit agency said that the Philippine banks are also “strong,” with a loan-to-deposit ratio of 38 percent at end-September.

“The banks’ core profitability should remain robust, as continued healthy loan growth offsets mild pressure on net interest margins,” said Simon Chen, Moody’s assistant vice president and analyst.

Fiscal strength
Furthermore, the Moody’s report said that the government’s improved fiscal strength would add to its ability to extend support to the banks when necessary.

On average, Moody’s rated banks in the Philippines receive 1 to 2 notches of uplift in their average long-term deposit ratings of Baa3 from their standalone credit ratings.

Moody’s rates seven banks in the Philippines. These seven commercial banks accounted for 63 percent of total banking system assets at end-June 2013.

Of the seven, six rank among the top 10 banks in the country by market share of total assets.

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