BSP gives rural banks one year to comply with new capital rules

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) is giving rural banks at least one year reprieve to comply with stricter regulations in meeting capitalization requirements.

BSP Deputy Governor Nestor Espenilla Jr. said in an interview with reporters that the implementation of the new regulations would take effect starting 2011 to allow for a smooth transition.

“We will definitely allow one year preparation time,” Espenilla stressed.

He pointed out that the central bank intends to adopt the Basel 1.5 regulations on rural banks as opposed to the Basel II rules that covered commercial and universal banks as well as their subsidiaries in 2006.

“We only migrated to Basel II the large commercial banks as well as their subsidiaries and affiliates but with the intention that we will align all banks. We also realized the rural banks are not necessarily Basel II level so we will just implement the Basel 1.5,” he added.

According to him, a draft of the proposed regulation is now being circulated among the members of the Rural Bankers Association of the Philippines for their comments that would be forwarded to the BSP’s policy-making Monetary Board for approval before the end of the year.

“After considering their comments, we hope to promulgate this by yearend and have it take effect in 2011, to give them ample time to make the necessary adjustments,” he said.

Espenilla, who heads the central bank’s supervision and examination section, said the new regulation would require rural banks to set aside funds for operational risks such as fraud, system failures, natural calamities, among others.

He added that the upgraded risk based capital adequacy framework for rural banks would be implemented to make sure that the risk management systems are in place.

He said the BSP would like to make sure that rural banks maintain strong capital positions to allow some leverage to expand activities and operations while ensuring that there is sufficient protection should risks taken turn into losses.

The BSP official said the capital adequacy ratio (CAR) requirement for rural banks would remain unchanged.

“The CAR requirement for rural banks will still be the same. There is no proposal to change the CAR requirement,” he added.

Data from the BSP showed that the average CAR of the rural bank industry was pegged at 18.03 percent in the first quarter of the year, better than the minimum prescribed CAR average of 10 percent by the central bank and the international standard of eight percent.

Latest figures showed that there are 221 rural banks involved in microfinance with outstanding loans of over P6 billion to 900,000 microentrepreneurs. –Lawrence Agcaoili (The Philippine Star)