SUMMARY
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MANILA, Philippines – Philippine banks have raised concerns over the implementation of Basel III in early 2014. They have to comply with the reform measure, which will require them to more than double their capitalization.
At a forum hosted by professional services firm Punongbayan & Araullo, Bangko Sentral ng Pilipinas (BSP) Assistant Governor Johnny Noe Ravalo shared with bank heads how the central bank can guide them through the transition.
In early 2012, BSP announced its decision to move from Basel II to Basel III – which would require all universal and commercial banks here to adopt to the capital adequacy standards – effective January 2014.
The Basel accord is an international regulatory framework for banks released by the Basel Committee on Banking and Supervision (BCBS) based in Switzerland. It defines capital standards and help cushion banks against financial shocks.
In the same forum, Punongbayan & Araullo Chair and CEO Ma. Victoria Españo said the reform measure is at an early stage of adoption.
“There is no sufficient experience, particularly in this region, on their implementation, and [there is] little understanding at this point of their real implication,” Españo noted.
“Some groups also fear regulators may issue guidance but only as issues are identified and brought to their attention,” she added.
Issues
The bank executives who sat with Ravalo at the first panel session expressed their support for the Basel accords. However, they had shared concerns over compliance with the new policy.
- Compliance is costly: banks would have to shell out for processes, demands from business units and the use of technology
- The policy is anti-inclusive: it would only serve industries that are not profitable
- External factors: the impact of external events, e.g. when U.S. interest rates go down, ours go up
BSP answers
In his speech earlier in the forum, Ravalo said that “the context of a Basel accord is not about the choice that makes it convenient for a financial institution to comply.”
Adopting Basel III, the latest industry reform measure, is about “recognizing the risks,” making sure “the standards are all set” and thus moving to “a framework that tries to address all of those risks.”
The financial market has always been risky, he stressed, with credit risk as a major part of its business model.
Risks, in fact, should always be seen coming. Compliance with Basel accords reflects banks’ execution of risk governance.
Ravalo, however, emphasized that capitalization in the country is adequate. The results of the diagnostics run independently by the BSP and the banks testify to this.
He agreed with the panelists that there will be a lot of execution challenges. Creating a sense of fairness, and communicating the vision to stakeholders, industries and the public are therefore key.
On the context of technology, he pointed to “a certain interconnectiveness” in banking. A certain scale allows transactions to be made over the counter and “the neighbor-type thing without redefining the system.”
Leveraging the country’s status as the Economist Intelligence Unit’s grandslam topnotcher in global microfinance policy, Ravalo said BSP has drafted a financial inclusion framework for the banks across the Philippine archipelago.
Read: BSP oks consolidation of 6 co-op banks
“At the end of the day, we need to be able to reach out to the market,” Ravalo said.
Long-haul
BSP’s vision is for the adoption of Basel III to be a “collective responsibility” and “shared accountability” for the authority and the banks.
Though not expecting a 100% vote, the central bank pushes for collaboration by communicating with the stakeholders — not just the banks, but also the industries and the public.
“We would like to believe we can make judicious choices not only for now, but also for the future,” Ravalo added.
The internal capital adequacy assessment process (ICAAP) and the impact of the ASEAN integration on the Philippine banking system were also discussed. – Rappler.com
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