The Monetary Board approved the Philippine adoption of the Countercyclical Capital Buffer (CCyB) intended for universal and commercial banks (U/KBs) as well as their subsidiary banks and quasi-banks.
The CCyB will be complied with by the banks using their Common Equity Tier 1 (CET1) capital. During periods of stress, the Monetary Board can lower the CCyB requirement, effectively providing the affected banks with more risk capital to deploy. During periods of continuing expansion, the CCyB may be raised which has the effect of setting aside capital which can be used if difficult times ensue.
BSP Governor Nestor A. Espenilla Jr. noted that “the CCyB expands our toolkit for systemic risk management and is specifically designed to provide a steadying hand to counter the common occurrence of boom-and-bust periods within the financial cycle.”
The CCyB is set initially at a buffer of zero percent. This is in line with global practice. It also suggests that the Monetary Board does not see the ongoing build-up of credit as an imminent risk that would otherwise require an increase in the capital position of banks. The buffer, however, will be continuously reviewed by the BSP. Banks will be given a lead time of 12 months in the event that the CCyB buffer is raised. However, when the buffer is reduced, it takes effect immediately.
“The CCyB is part of our macroprudential measures that can help guide the path of future credit growth but is flexible enough to potentially provide immediate effects to address market tightness. This is why it is important to have the CCyB framework in place”, said Governor Espenilla.
The adoption of the CCyB into the regulatory framework reflects the efforts of the BSP to continuously monitor and mitigate the build-up of systemic risks and it is in line with the policy objective of pursuing financial stability.