Philippine central bank bolsters small lenders' capital

Small banks should allot a minimum 6% CET1 ratio and 7.5% Tier 1 ratio.

The Bangko Sentral ng Pilipinas (BSP) urged small banks to boost their capital to ensure their ability to absorb losses, according to a news release.

The central bank approved revisions to the risk-based capital adequacy framework for thrift banks, rural banks, and cooperative banks to allocate 6% common equity tier 1 (CET1) and 7.5% Tier 1 ratio.

This is in addition to the existing minimum capital adequacy ratio (CAR) of 10%.

The 2.5% capital conservation buffer (CCB) requirement is also included in the framework, in the form of CET1 capital, and is computed in excess of the 6% CET1 Ratio. This ensures that covered banks have capital buffers which can be drawn as losses are incurred.

When certain levels of CET1 capital are breached, the bank concerned will be restricted from distributing earnings like dividends in order to build its CCB.

The BSP provides an observation period until 31 December 2021 to allow the smooth transition to the amended capital requirements. During the said period, covered banks are required to submit parallel CAR reports using the existing and new frameworks.

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