July 07, 2015

BSP completes review of too-big-to-fail banks

According to an article by news portal interaksyon.com, the central bank (BSP) has completed the review of local lenders to determine which are domestic systemically important banks (DSIBs). These are local banks whose failure would disrupt the country’s financial system.

Among the criteria that the BSP has used to rank the systemic importance of banks are size, interconnectedness, substitutability and complexity. Banks with the highest rank in terms of systemic importance will be required to maintain additional common equity tier 1 (CET1) of 150 to 250 bps. The DSIB charges will be implemented on a staggered basis starting in January 2017 and will be fully implemented by January 2019.

Our take: Though the staggered implementation of the DSIB charges will start more than a year from now, most local banks have already done their fair share of capital management and capital raising exercises. As such, we believe that most banks are in a strong position to comply with the full implementation of the DSIB charges.

Of note, however, is BDO, which had a parent CET1 ratio of 10.6% in 1Q15. This is below the 11.0% CET1 threshold that may be required for the country’s biggest banks. BDO’s management has said that the bank does not have any capital-raising plans for this year. The bank will continue to monitor the pace of its loan growth while further enhancing its RoE profile in order to determine if any additional capital-raising may be needed between now and January 2019. – WealthSec