BSP eyes 25% exposure limit for banks

By Melissa Luz T. Lopez, Senior Reporter
THE CENTRAL BANK is looking to introduce a new measure that will cap credit exposures of banks, as the regulator seeks to keep up with global standards on risks management.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said authorities are eyeing the adoption of the 25% large exposures limit for Philippine banks, which forms part of the international Basel III framework.
“Our policy reform agenda for 2019 shall further embed effective risk management systems in banks through enhancements to our risk-based capital framework as well as the credit, liquidity and operational risk management standards,” Ms. Fonacier said in a speech before the membership meeting of the Chamber of Thrift Banks yesterday.
“As a means to improve credit concentration risk management in banks, the BSP intends to adopt the 25% Basel large exposures limit as part of our existing credit risk management guidelines.”
The standard seeks to protect banks “from traumatic losses caused by the sudden default of an individual counterparty or group of connected counterparties,” as their inability to pay could also put the lender in financial trouble, according to the Basel Committee on Banking Supervision.
While the measure is yet to be finalized, BSP Managing Director Lyn I. Javier said the proposal will “not be a hard blow” on the industry.
The central bank has so far imposed the risk-based capital adequacy ratio (CAR) minimum requirement, which stands at 10%. This is higher than the 8% international standard.
Latest available data show that big banks maintained a risk-based CAR at 15.87% at end-June.
Ms. Fonacier said the BSP is also looking to adopt upcoming Basel III revisions which outline a “standardized approach” for credit risk and operational risk,” which are expected to be implemented in 2022.
On the other hand, Ms. Fonacier said they are “open” to postponing the liquidity coverage ratio (LCR) requirement for thrift and rural banks that are subsidiaries of universal and commercial lenders.
The LCR mandates big banks to hold high-quality and easily convertible assets to cover their net cash outflows for a 30-day period. She clarified, however, that the 100% LCR for big banks as well as the 20% minimum liquidity ratio for stand-alone thrift lenders will take effect on Jan. 1, 2019 as scheduled.
Meanwhile, mechanics for reporting intraday liquidity positions are still in the works, she said.
Large banks are seen ready to comply with the Basel III standards as they are fully implemented next year, according to latest BSP data.