Implementation of Basel III
On 15 January 2013, the Bangko Sentral ng Pilipinas (BSP) released Circular No. 781 which provides the implementing guidelines on the revised risk-based capital adequacy framework particularly on the minimum capital and disclosure requirements. The new framework which took effect in 2014 is applicable to all universal and commercial banks (U/KBs) and their subsidiary banks and quasi-banks. This framework allowed a reasonable transition period for banks to comply with the new minimum requirements. While the international rules allow staggered implementation, the BSP adopted the capital reforms in full, in recognition of the strong capital position of the banking industry.
The BSP implements new minimum capital ratios of 6.0 percent Common Equity Tier 1 (CET1) ratio, 7.5 percent Tier 1 ratio and 10.0 percent Total Capital Adequacy Ratio (CAR). A capital conservation buffer (CCB) of 2.5 percent, comprised of CET1 capital was also prescribed.
In recognition of the distinct structure of foreign bank branches (FBBs) which operate under the U/KB license, a calibrated Basel III framework was issued under Circular No. 822 dated 13 December 2014. The reform highlighted the role of Permanently Assigned Capital which is the CET1 equivalent for FBBs. Shortly after, R.A. No. 10641 amending R.A. No. 7721, was approved to further liberalize the entry of foreign banks. To implement this law, the BSP issued Circular No. 858 dated 21 November 2014, providing the new capital computation for FBBs.
In October 2014, Circular No. 856 Basel III Framework for Dealing with Domestic Systemically Important Banks (DSIBs) was issued to address systemic risk and interconnectedness by identifying banks which are deemed systemically important within the domestic banking industry. Minimum buffers composed of CET1 capital shall be required of systemically important banks starting January 2017.
Implementation of Basel II
BSP Circular No. 538 dated 4 August 2006 contains the implementing guidelines on the revised risk-based capital adequacy framework for the Philippine banking system to conform with Basel II recommendation. The guidelines which took effect on 1 July 2007 provide the approaches that may be used in computing the regulatory capital requirements for credit, market and operational risks (Pillar I), as well as additional supervisory information which needs to be disclosed to the public (Pillar III).
To address the second pillar, the BSP issued Circular No. 639 on 15 January 2009. This took effect on 1 January 2011 and was made applicable to U/KBs at a consolidated level only. Circular No. 639 contains the guiding principles that (1) banks should follow in designing their Internal Capital Adequacy Assessment Process (ICAAP), and (2) BSP supervision and examination personnel should consider in assessing a bank’s ICAAP, engaging the bank in an ICAAP-dialogue, and proposing prudential measures, if deemed necessary. On 28 July 2011, the BSP came up with supplemental guidelines on the ICAAP submission of Philippine branches of foreign banks which was embodied in Circular No. 731 dated 28 July 2011. The ICAAP submissions of Philippine foreign bank branches are expected to be designed in accordance with the nature, size and complexity of their businesses in the Philippines.
Implementation of Basel 1.5
Stand-alone thrift banks (TBs), rural banks (RBs) and cooperative banks (Coop Banks), which refer to TBs, RBs and Coop Banks that are not subsidiaries of U/KBs, are covered by a separate risk-based capital adequacy framework referred to by the BSP as the Basel 1.5 framework which is a simplified version of Basel II in view of the simple operations of these covered banks. The implementing guidelines of Basel 1.5 are contained in Circular No. 688 dated 26 May 2010 which took effect on 1 January 2012.
Originating Circulars of Current Risk-Based Capital Adequacy Frameworks