New BSP capital rules to strengthen gov’t banks

Published May 18, 2022, 4:43 PM

by Lee C. Chipongian

Government-owned banks will have more capital and funding for development financing after the Bangko Sentral ng Pilipinas (BSP) amended the computation of their minimum required capital and risk-based capital adequacy ratio.

BSP Governor Benjamin E. Diokno said on Wednesday, May 18, that with the release of Circular No. 1142, which was issued last March 29, government banks will be more effective in dispensing loans for developmental projects as well as in funding National Government (NG) programs to help sectors and industries affected by the pandemic, and to ensure sustained recovery and growth.

BSP building and logo

“The policy enhancement will enable GBs (government banks) to free up and reallocate capital to aid priority sectors affected by the COVID-19 pandemic, in support of the NG’s broader economic recovery efforts,” said Diokno.

During a virtual press briefing on Wednesday, the BSP chief explained that the enhanced circular provides for unsecured peso-denominated credit exposures to the NG to be excluded from the deductible items for purposes of computing the minimum required capital and the Common Equity Tier 1 (CET 1) capital — or owners’ equity and retained earnings — in deriving the risk-based capital adequacy ratio (CAR) of a government bank.

“Overall, the issuance of the circular is expected to have a positive impact in the adjusted capital and CAR of government banks, albeit minimal given the current low loan exposure of these banks to the NG,” said Diokno.

He said that for government banks, their credit accommodations to the NG are considered as directors, officers, stockholders, and their related interests (DOSRI) transactions. These credit accommodations are unsecured and deducted from capital.

Under existing regulations, Diokno said DOSRI should be deducted for purposes of computing adjusted capital and CET1 capital, but these regulations do not provide a distinction on whether the DOSRI account is considered non-risk or not.

“Note that government-owned or –controlled banks, or government banks, are wholly or partly-owned by the NG. Hence, credit accommodations of these banks to the NG through national government agencies, are considered DOSRI transactions and fall under deductions for purposes of capital computations,” said Diokno.

The issuance of Circular 1142 is expected to have a positive impact on the adjusted capital and CAR of government banks, even with their current low loan exposure to the NG, he added.

The country’s second biggest bank, Land Bank of the Philippines (Landbank), is a state-controlled financial institution. As of end-2021, Landbank has total assets of P2.6 trillion.

The Development Bank of the Philippines, meantime, is the sixth largest lender in terms of assets of P1.16 trillion.