October 22, 2014

BSP sets bank capital requirement based on network size

The Bangko Sentral ng Pilipinas (BSP) has reportedly approved a measure that sets minimum bank capital requirements based on their network size. Thus, a universal bank with more than 100 branches is now required to have a minimum capital of P20b, those with 11- 100 branches, P15b; and those with up to 10 branches, P6b; and those with only head offices in the country, P3b. Commercial banks with more than 100 branches must have a capital of P15b, P10b for those with 11-100 branches, P4b for those with up to 10 branches, and P3b for those with only head offices in the country. Thrift, rural and cooperative banks will also have various capital requirements based on the their physical network size and location of their head offices.

Our take: We believe this new measure is a calibrated move by the BSP to weed out weak and undercapitalized banks. In turn, the BSP would like to spur further industry consolidation, as undercapitalized banks which do not want to increase their capital bases along with the new regulation will likely be acquired by bigger and stronger banks. We do not see this move affecting the listed universal banks under our coverage which already have capital levels way above the minimum requirement set by the BSP. For example, EastWest Bank (EW), the smallest universal bank under our coverage, already had a capital of P20.4b as of end-2Q14. Hence, we do not see the need for further capital raising as far as the bigger listed universal banks are concerned.

However, the higher capital requirement may affect certain commercial banks and more of the smaller thrift and rural banks. Hence, this policy move will provide the bigger listed banks with acquisition opportunities that would allow them to further expand their branch network. – WealthSec