THE BANGKO SENTRAL and Pilipinas (BSP) have adopted a new measure designed to stimulate banks' capital to further equip them to cope with episodes of financial stress.
In a Thursday statement, the Monetary Board announced the approval of the countercyclical capital buffer (CCyB) as a new preventive tool to better manage financing risks.
"Being anti-cyclical" means that universal and commercial banks, as well as their subsidiaries, have to reserve more money for boom or growth periods that they can then use in a financing crisis so that they can continue to borrow money.
The CCyB will be on top of the solvency ratio, with major lenders having to keep at least 10% of their risk-weighted assets at all times.
The CCyB is set at a maximum of 2.5%, but starts at zero percent.
This prudential tool is included in the Basel 3 international framework, although the central bank initially decided not to apply the standard until the end of this year.
Other available buffers are the common equity tier 1 (CET1) ratio at six percent, the high-quality or tier 1 capital ratio of 7.5% and the capital conversion buffer also at 2.5%.
The BSP said that banks will use their CET1 capital to meet the CCyB requirement.
The press statement quoted BSP Governor Nestor A. Espenilla, Jr., when he said that the CCyB had a stable hand & # 39; offers in the middle of tree-and-bust & cycles.
"During periods of continuous expansion, the CCyB can be raised, reserving capital that can be used when times are tough," said the central bank.
"During periods of stress, the Monetary Office can lower the CCyB requirement, giving the affected banks more risk capital to deploy."
The central bank said the CCyB & # 39; s start with zero percent, "suggests that the Monetary Board does not see continued credit build-up as an immediate risk that would otherwise require an increase in the capital position of banks."
"However, the buffer will be constantly assessed by the BSP."
Banks receive a period of 12 months to raise funds if the BSP increases the buffer level. On the other hand, a reduction of the CCyB immediately takes effect.
Espenilla on December 6 signed Circular No. 1024 that provides for the CCyB that will take effect 15 days after publication.
The Basel 3 international framework consists of a series of preventative measures to provide banks with a solid foundation. These ensure that lenders do not fold and draw lessons from the global financial crisis of 2008. – Melissa Luz T. Lopez