MANILA, Philippines — As it accelerates implementation of Basel 3 principles by four years, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has prepared other provisions to amend the risk-based capital adequacy framework that will affect banking institutions’ capital and liquidity.

BSP Deputy Governor Nestor A. Espenilla Jr. presented the implementation plans last Friday, signaling the central bank’s intention to adopt Basel 3 principles in full by January 1, 2014, instead of a stagger basis of up to 2018. These new standards, representing a package of reforms issued by the Basel Committee on Banking Supervision in the document under “Basel 3,” will be adopted by all nations adhering to the Basel principles.

The new BSP guidelines, which will be released not later than April this year, will adopt Basel 3 standards on the areas of capital and liquidity in order to address “weaknesses brought to light by the global financial crisis,” according to a BSP report.

What was announced last Friday is the implementation schedule but the actual guidelines on other aspects of Basel 3 including BSP’s approach on leverage and liquidity are still under the review stages. The BSP is also still studying how to deal with the so-called “countercyclical capital buffer.”

“The BSP is announcing the capital adequacy implementation timeline to initiate a smooth transition to the new global architecture,” said the BSP.

According to a BSP document, Basel 3 basically modifies the structure of banks’ regulatory capital base. The difference between Basel 2 and Basel 3 is that the latter further divides qualifying capital or tier 1 capital into common equity and does away with the sub-categories of tier 2.

Most importantly, Basel 3 has more “stringent definitions” of capital instruments particularly those included in common equity.

In a press statement released by the BSP last Friday, it discussed highlights of Basel 3 which BSP approved to adopt provisions last December 27. The guidelines will be finalized by the third quarter of 2012 to allow one full year for a parallel run of the old and new guidelines before the new standards come into force on January 1, 2014.

For example, under Basel 3, common equity tier 1 (CET1) ratio will be set at a regulatory minimum of six percent while the total tier 1 ratio will be at a 7.5 percent minimum. Total tier 1 capital is made up of common equity and the so-called “going concern” capital, said the BSP. The BSP will also implement a capital conservation buffer of 2.5 percent above the regulatory minima.

Other components of Basel 3 implementation includes the criteria for eligible capital instruments that are not yet covered by Circular No. 709, a further streamlining of the tier 1 and tier 2 limits and the handling of deductions against CET1.

BSP explained that Circular No. 709 which was approved in December 2010 amended the existing risk-based capital adequacy framework by adopting the minimum conditions of Basel 3 for inclusion of non-common equity regulatory capital instruments in qualifying capital.