Twenty-two days before Basel 3 starts in the Philippines, the Monetary Board has approved amendments to the capital framework of foreign bank branches (FBB) operating in the Philippines by subjecting them to have an increase in total tier 1, common equity tier 1 and capital conservation buffer.
The capital component of FBB under the amendments shall be predominantly composed of permanently assigned capital (PAC).
PAC’s concept was already introduced by law through RA 7721 (An act liberalizing the entry and scope of operations of foreign banks in the Philippines and for other purposes).
All FBBs should abide by the new guidelines of the BSP for total tier 1, common equity tier 1 and CCB of 7.5 percent, six percent and 2.5 percent, respectively.
Prior to this amendment, only universal and commercial banks are obliged to adhere to Basel 3 guidelines.
According to the BSP, all FBBs must adhere to the guidelines as they will operate in the Philippines under a license of a UKB.
Meanwhile, FBB accounts which are booked under the “net due to” account will now be classified as tier 2 capital.
All tier 2 capitals are no longer illegible when Basel 3 starts in Jan. 1, 2014.
All these capitals have been raised by 1.5 percent by the BSP but the CCB is a new concept.
Under Basel 3, UKBs and FBB that do not follow the new capital requirements will not be allowed to expand and will be prohibited to give dividends.
The “net due to” account typically reflects transactions between the FBB and its parent entity and includes placements, investments and borrowings.
Any FBB that cannot comply with the new capital requirements have been given until Jan. 1, 2015 to comply.
FBB that will be unable to meet the capital requirements are mandated to submit to the BSP their capital buildup plan until Apr. 1, 2014.
The BSP said all FBBs in the country must have increased capital to avoid reliance to their parent bank while operating locally.