08.07.2015, 11:17
Fitch: Most Big Banks Can Meet Philippines D-SIB Capital Buffers
OREANDA-NEWS. Philippine banks should be able to meet new capital requirements for domestic systemically important banks (D-SIB) deemed "too big to fail", says Fitch Ratings. Most large and mid-sized banks in the Philippines have core equity Tier 1 (CET1) ratios comfortably above Basel III minimums, with the largest banks' CET1 ratios falling between 12%-14% as of end-2014.
Bangko Sentral ng Pilipinas (BSP) announced on 6 July that it had determined which banks would be considered D-SIBs under the framework initially outlined in October 2014. Banks designated as D-SIBs will be required to hold additional loss-absorbency of 1.5% or 2.5% of risk-weighted assets depending on a number of factors - including size, market reliance and complexity. The higher capital requirements will be phased in over two years beginning in January 2017, to be fully in place by January 2019, with minimum CET1 ratios of 10%-11% for D-SIBs.
The 1.5%-2.5% additional capital buffer is broadly in line with other Asian jurisdictions which have announced D-SIB frameworks, including Singapore and Hong Kong. Singapore announced a 2% additional capital requirement for its D-SIBs in April, while Hong Kong announced in March that it would be phasing in a 1%-3.5% requirement.
The BSP, unlike the monetary authorities in Hong Kong and Singapore, will not publicly disclose which banks are classified as D-SIBs or their respective additional loss-absorption buckets. As part of its framework, the BSP will update the list of D-SIBs annually and notify the relevant banks separately. Fitch believes that a handful of the largest banks (including BDO Unibank, Bank of the Philippine Islands and Metrobank) are likely to incur a 2.5% additional loss-absorption requirement while other large lenders should fall into the 1.5% bucket.
Banks need to meet the capital requirements at a consolidated level as well as individual entity (solo)level. Capital ratios tend to be lower for parent banks at the individual entity level, and Fitch believes not every parent bank would have met the D-SIB requirement had it been fully implemented at end-December 2014.
However, Fitch expects any banks with a shortfall to take action to comply with the requirements ahead of the phase-in period. Increasing the solo level capital ratio could be achieved through internal capital generation, but this would require a slowdown in credit growth or an increase in earnings retention. Alternatively, a parent bank may have to raise more common equity or streamline its subsidiary holdings.
The BSP has also established a higher 3.5% capital charge bucket - no banks fall into this category at present - to disincentivise banks from becoming even more systemically important. Fitch believes that banks will control asset growth so as to avoid falling into the 3.5% bucket, although growth at some banks has been substantially higher than nominal GDP growth in recent years. The 3.5% bucket should also become a consideration for large banks when contemplating substantial acquisitions in the future.
Overall, Philippine bank capitalisation is relatively robust, with several lenders having boosted their CET1 ratios. Notably, Metrobank completed a PHP32bn stock rights offer in March 2015, which brought its published pro-forma end-2014 CET1 ratio to 15.5%. Rizal also boosted its CET1 ratio by 200bp earlier in the year from 10.4% at end-2014, with a fresh capital injection from Taiwan's Cathay Life Insurance. That said, banks' current capital ratios may be eroded if credit growth were to continue to outstrip internal capital generation.
Fitch expects profitability (as measured by ROE) to come under pressure as core capital increases. This will add to profitability pressures caused by intensified competition from new foreign entrants.
Bangko Sentral ng Pilipinas (BSP) announced on 6 July that it had determined which banks would be considered D-SIBs under the framework initially outlined in October 2014. Banks designated as D-SIBs will be required to hold additional loss-absorbency of 1.5% or 2.5% of risk-weighted assets depending on a number of factors - including size, market reliance and complexity. The higher capital requirements will be phased in over two years beginning in January 2017, to be fully in place by January 2019, with minimum CET1 ratios of 10%-11% for D-SIBs.
The 1.5%-2.5% additional capital buffer is broadly in line with other Asian jurisdictions which have announced D-SIB frameworks, including Singapore and Hong Kong. Singapore announced a 2% additional capital requirement for its D-SIBs in April, while Hong Kong announced in March that it would be phasing in a 1%-3.5% requirement.
The BSP, unlike the monetary authorities in Hong Kong and Singapore, will not publicly disclose which banks are classified as D-SIBs or their respective additional loss-absorption buckets. As part of its framework, the BSP will update the list of D-SIBs annually and notify the relevant banks separately. Fitch believes that a handful of the largest banks (including BDO Unibank, Bank of the Philippine Islands and Metrobank) are likely to incur a 2.5% additional loss-absorption requirement while other large lenders should fall into the 1.5% bucket.
Banks need to meet the capital requirements at a consolidated level as well as individual entity (solo)level. Capital ratios tend to be lower for parent banks at the individual entity level, and Fitch believes not every parent bank would have met the D-SIB requirement had it been fully implemented at end-December 2014.
However, Fitch expects any banks with a shortfall to take action to comply with the requirements ahead of the phase-in period. Increasing the solo level capital ratio could be achieved through internal capital generation, but this would require a slowdown in credit growth or an increase in earnings retention. Alternatively, a parent bank may have to raise more common equity or streamline its subsidiary holdings.
The BSP has also established a higher 3.5% capital charge bucket - no banks fall into this category at present - to disincentivise banks from becoming even more systemically important. Fitch believes that banks will control asset growth so as to avoid falling into the 3.5% bucket, although growth at some banks has been substantially higher than nominal GDP growth in recent years. The 3.5% bucket should also become a consideration for large banks when contemplating substantial acquisitions in the future.
Overall, Philippine bank capitalisation is relatively robust, with several lenders having boosted their CET1 ratios. Notably, Metrobank completed a PHP32bn stock rights offer in March 2015, which brought its published pro-forma end-2014 CET1 ratio to 15.5%. Rizal also boosted its CET1 ratio by 200bp earlier in the year from 10.4% at end-2014, with a fresh capital injection from Taiwan's Cathay Life Insurance. That said, banks' current capital ratios may be eroded if credit growth were to continue to outstrip internal capital generation.
Fitch expects profitability (as measured by ROE) to come under pressure as core capital increases. This will add to profitability pressures caused by intensified competition from new foreign entrants.
Комментарии