The Bangko Sentral ng Pilipinas (BSP) will extend the necessary regulatory relief to the two government banks that will be mandated to invest in the proposed Maharlika Investment Fund (MIF) but the granting of reprieve will depend on their financial condition, according to a BSP official.

BSP Deputy Governor Chuchi G. Fonacier said only the Monetary Board, the central bank’s policy-making body, will determine when the relief measure will be given to Land Bank of the Philippines (Landbank) and the Development Bank of the Philippines (DBP) as MIF funders.

If passed into a law, the current Senate version will direct Landbank to put in P50 billion as MIF seed money, while DBP will invest P25 billion.

Fonacier said reprieves will not be an automatic decision if or when both banks will invest in a sovereign wealth fund. “(We don’t want it) right away, automatic. The MB (Monetary Board) should be given the leeway to ascertain a point in time scenario whether the regulatory relief can be extended,” she told reporters in a recent BSP event.

Once investors in a sovereign wealth fund, Landbank and DBP could breach capital ceilings imposed by the BSP in terms of bank investments and this could affect their capital base.

Landbank President and CEO Cecilia C. Borromeo, for her part, said a BSP regulatory relief will be considered “major” because setting aside P50 billion as MIF seed money will have an impact on their capital adequacy ratio (CAR).

“BSP regulation is such that all investments of banks, be it allied or non-allied, will have a 100 percent charge on our capital. Meaning that investment will be deducted from our capital when we compute our capital adequacy ratio. Since it’s a directed investment to support the national socioeconomic agenda, we will have to ask for a regulatory relief,” Borromeo told Manila Bulletin.

Armed with a regulatory reprieve, Borromeo said Landbank’s CAR should remain intact. “That amount (P50 billion) will not be deducted from our capital when we compute our CAR. That’s a major relief measure,” she said, adding that removing P50 billion from their capital base will lead to a lowering of their CAR without regulatory relief.

As of end-September 2022, Landbank’s total CAR stood at 14.69 percent, lower than previous year’s 14.91 percent but above the 10 percent BSP requirement. Its Common Equity Tier 1 (CET 1) capital was also lower at 13.80 percent from 14.03 percent same time in 2021.

Both banks can ask the BSP to not include their MIF investments in the accounting of their CAR. Under the central bank’s risk based CAR regulation, as a percentage of qualifying capital to risk-weighted assets, this should not be less than 10 percent.

Investing in MIF may trigger both banks to be subjected to limit and ceilings as determined by Fonacier’s sector in the BSP, which is the Financial Supervision Sector.

Fonacier said they prefer that the Monetary Board “should be the one to determine” when to grant regulatory relief because the timing will be related to the two banks’ financial condition.

“That’s how BSP assess the basis for granting regulatory relief. It’s difficult to say (that we’ll give it) at the onset. Because remember, with these two government banks, there’s an element of public interest so we have (to consider) public interest,” said Fonacier.

The BSP official also said that the seven-person Monetary Board, must have the flexibility and authority on the timing of when to grant the relief measures.

Last year, the BSP amended the computation of minimum required capital and CAR of government-owned banks to allow them to have the capital and funding for development financing.

BSP Circular No. 1142, which was issued on March 29, 2022, freed up government banks’ capital for developmental loans. It provides for unsecured peso-denominated credit exposures to the National Government to be excluded from the deductible items for purposes of computing the minimum required capital and the CET 1 capital -- or owners’ equity and retained earnings -- in deriving the risk-based CAR of a government bank.