Lenders given respite from new rules

THE Bangko Sentral ng Pilipinas (BSP) has pushed back the implementation of two international standards aimed at strengthening the risk management of commercial and universal lenders.

BSP Governor Amando Tetangco Jr. said the Monetary Board granted the industry’s request for the one-year suspension in the implementation of the Internal Capital Adequacy Assessment Process (ICAAP), which determines the appropriate level of capital that banks should hold.

Also put off was the start of the Supervisory Review Process (SRP), an approach for the evaluation of banks accompanying the ICAAP.

“The Monetary Board extended the effectivity of [ICAPP and SRP] from January 1, 2010 to January 1, 2011,” Tetangco said.

“They need to refine their reports. So we are giving them one year,” he told reporters.
He said the banks were asked to submit or file reports in the second semester this year to prepare them for the actual reports by the start of next year.

Under the guidelines implemented since December last year, banks should consider a number of factors in their assessment, among others, their risk profile, their business plans, and possible changes in the operating environment.

The guidelines for ICAAP and SRP are in line with the BSP’s commitment to adopt Basel 2, the international standard for capital adequacy drafted by the Basel Committee on Banking Supervision.

Banks are required to submit a trial ICAAP document to the BSP by end-March this year.  Thereafter, they shall submit the ICAAP document on an annual basis every January beginning 2010.

The review of the banks’ ICAAP will entail a dialogue between BSP personnel and bank management.

Should the BSP find that the ICAAP is insufficient, or that the bank does not have enough capital, the Monetary Board will recommend prudential measures, ranging from improving internal controls, to reducing its risks, and holding additional capital.

The document consists of three pillars, namely, minimum capital requirements, the SRP, and market discipline.

At present, the BSP requires banks to maintain a risk-based capital adequacy ratio of at least 10 percent.

Lenders must also ensure they have capital to support any expansion plans, and weather downturns in the market.  Other considerations may include external rating goals and market repu-tation. Three measures are suggested in the guidelines.

For the structured approach, banks will need to set the internal capital requirement at a starting point of zero capital and then build on this due to all risks and external factors.

The allocation-of-risk-taking approach entails that banks start with their actual capital and break it down to all their material risks.

The amount of capital provided for each risk category is determined by the current and envisaged amount of risk in each category, a risk buffer and the risk appetite.

Lastly, there are formal economic capital models that banks are expected to use, before moving to the advanced approaches in determining the minimum regulatory capital requirement, or those that have substantial derivatives and structured products transactions. –Maricel E. Burgonio, Manila Times