The Monetary Board (MB) approved on 18 December 2003 further amendments to BSP Circular No. 280 which prescribes the guidelines for the computation of capital adequacy requirements under the risk-based framework recommended by the Basel Committee. The amendments involve the lowering of the risk weight assignable to claims on or portions of claims guaranteed or collateralized by securities issued by multilateral development banks (MDBs) such as the Asian Development Bank (ADB) from 20 percent to zero percent, and the expansion of the list of qualified MDBs.
The zero risk weight for claims on MDBs subject to credit risk capital requirements will result in the uniform treatment of said institutions under the current capital framework. Under BSP Circular No. 280 dated 29 March 2001, which set out the initial guidelines for the Philippines’ adoption of the risk-based capital adequacy framework covering credit risks, claims on MDBs carry a 20 percent risk weight as prescribed in the 1988 Basel Capital Accord. However, when market risk capital requirements were subsequently introduced through Circular No. 360 dated 3 December 2002, positions in debt securities issued by MDBs were assigned a zero percent risk weight for purposes of computing specific risk capital charges since these are normally triple A rated entities. This, in turn, is consistent with the proposed treatment under the more recent Basel 2 initiative.
Apart from the reduction in the risk weight, the MB also approved four additional institutions which qualify for the preferential MDB risk weighting. These are the International Finance Corporation (IFC), the Nordic Investment Bank, the Caribbean Development Bank, and the Council of Europe Development Bank.
This amendment is expected to expand the universe of non-capital heavy instruments that banks may invest in or accept as collateral, as well as make regulatory capital available for other activities.