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BSP Issues Exposure Draft of Its New Risk-Based Capital Adequacy Framework

04.20.2005

The Bangko Sentral ng Pilipinas (BSP) has issued the exposure draft of its proposed new risk-based capital adequacy framework.  BSP’s risk-based capital adequacy framework sets the standards in determining the minimum amount of capital a bank should hold given its risk exposures. 

The exposure draft outlines the BSP’s proposed implementing guidelines of the revised International Convergence of Capital Measurement and Capital Standards, or more popularly known as Basel 2.  Basel 2 is the new international capital standards set by the Basel Committee on Banking Supervision (BCBS)[1].  It aims to replace Basel 1, which was issued in 1988 with an amendment in 1996, to make the risk-based capital framework more risk-sensitive.  In the Philippines, the proposed new risk-based capital adequacy framework aims to replace the existing framework under Circular Nos. 280 and 360, and their corresponding amendments.

Some of the major changes in the new framework are the emphasis on the use of external credit assessments in determining the riskiness of bank exposures, the additional capital charge for operational risk, and the detailed disclosure requirements for banks.

The contents of the exposure draft are borne out of BSP’s nearly 4 years of close monitoring of developments in the BCBS, and close coordination with other banking supervisors in the Asia-Pacific region through policy-oriented meetings.  This exposure draft also takes into account the results of the quantitative impact study conducted by the BSP from late 2002 to early 2003.

The exposure draft applies to all universal banks and commercial banks, as well as their thrift bank and rural bank subsidiaries and affiliates[2].  Other thrift banks and rural banks shall continue to be subject to the current risk-based capital adequacy framework, but with additional disclosure requirements.  The framework for the new disclosure requirements for thrift and rural banks will be issued in due time.

The aim of the exposure draft is to solicit comments from all interested parties, who may download it from the BSP website.  Comment period will be until end-September 2005.  The new framework is set to be implemented in 2007, as stated in the BSP Memorandum to All Banks dated 13 December 2004.


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[1]  The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1975.  It consists of senior representatives of bank supervisory authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States.  It usually meets at the Bank for International Settlements in Basel, Switzerland where its permanent Secretariat is located.

[2]  Thrift bank and rural bank affiliates shall refer to those that are 20% to 50% owned by the parent universal bank or commercial bank.

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