By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) will bide its time when to introduce new regulations on borrowers’ stress test and other systemic-related measures for managing credit growth.
BSP Assistant Governor Johnny Noe E. Ravalo said they will have to wait before presenting both the Debt-to-Earnings-of-Borrowers’ Test (DEBT) or the Borrowers’ Interconnectedness Index (BII) to the Monetary Board for approval to wait out the impact of the BSP’s 175 basis points policy rate increase last year.
The DEBT evaluates the debt-servicing capacity of bank borrowers under the stress scenario of higher interest rates and/or a depreciation of the peso. The BII will determine the systemic importance of a borrower in the banking system based on a defined quantitative measure.
“At this point, it seems that the prudent thing to do is not to – in a way – add too many regulations of the same direction (when) the BSP is in a tightening mode,” said Ravalo.
He said that the BSP will “have to calibrate when to introduce the new rules. (It will be done) in due time.”
The DEBT and BII proposed regulations have gone through several exposures in the banking community for comments. Ravalo said they can fit the final version to address the industry comments.
“We have not taken it up with the Monetary Board but it’s gone through rounds of consultations,” he added.
The DEBT and BII was expected to be approved about the same time as the counter cylical capital buffer (CCyB) last December 2018. The CCyB is a precaution to make sure that banks have enough capital to ensure flow of credit in times of financial stress.
Based on BSP Circular No. 1024, the CCyB is set at zero percent and subject to upward adjustment to a rate that will be determined by the Monetary Board “when systemic conditions warrant but not to exceed 2.5 percent.” In the event that an increase to the CCyB is approved, it will be set after one year from its announcement while a decrease will take effect immediately.
The BSP has set up several macroprudential measures to power up its oversight of banks’ lending behavior, such as caps on real estate loans and loan-to-value ratio, the real estate stress test and the residential real estate price index. All these have indicated manageable levels of credit growth.
The CCyB, the DEBT and BII are all macroprudential measures to further strengthen the BSP’s credit growth monitoring.
The CCyB is the “stressed time” counterpart of the Capital Conservation Buffer which was introduced as early as 2014. Compliance to the CCyB rule will be through banks’ Common Equity Tier 1 capital.