The Monetary Board (MB) deferred by one year the full adoption of the Basel III leverage ratio standard in view of recent revisions to the said global standard by the Basel Committee on Banking Supervision (BCBS).
Under Circular No. 881 dated 9 June 2015, universal and commercial banks and their subsidiaries had been scheduled to wind-up the monitoring period and begin adhering to the five percent minimum leverage ratio by 01 January 2017.
The MB decided on the deferment considering BCBS’ issuance of the consultative document, “Revisions to the Basel III leverage ratio framework” in April 2016, which the BCBS is set to finalize by end-2016.
In relation to this, the MB also extended the monitoring period for the leverage ratio until 31 December 2017. The additional year for monitoring provides more time for banks to calibrate their exposures in view of the requirements.
Under Basel III, the leverage ratio acts as a supplementary measure to the risk-based capital adequacy ratio (CAR) as it serves as a simple, non-risk-based “backstop” measure, that intends to restrict the build-up of leverage in the banking system.
The leverage ratio relates the level of a bank’s Tier 1 capital against its total exposures. Effectively, this means that the maximum exposure that a bank can keep is 20x its Tier 1 capital.
Basel III reforms are integral to the banking reform agenda of the Bangko Sentral ng Pilipinas which is ultimately aimed at promoting Financial Stability.