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Friday, March 29, 2024

BSP defers 5% bank leverage ratio

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The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, deferred the full adoption of Basel 3 leverage ratio by one year.

Leverage ratio relates to the level of a bank’s Tier 1 capital against total exposures.  Bangko Sentral said it deferred the adoption of the 5-percent minimum leverage ratio, following the recent revisions by the Basel Committee on Banking Supervisions.

Under Circular 881 dated June 9, 2015, universal and commercial banks and their subsidiaries were supposed to wind up the monitoring period and begin adhering to the 5-percent minimum leverage ratio by Jan. 1, 2017.

“The Monetary Board decided on the deferment considering Basel Committee on Banking Supervision’s issuance of the consultative document ‘Revisions to the Basel 3 leverage ratio framework’ in April 2016, which the BCBS is set to finalize by end-2016,” Bangko Sentral said in a statement.

The Monetary Board also extended the monitoring period for the leverage ratio until Dec. 31, 2017. 

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It said the additional year for monitoring would provide banks more time to calibrate their exposures in view of the requirements.

Under Basel 3, the leverage ratio acts as a supplementary measure to the risk-based capital adequacy ratio as it serves as a simple, non-risk-based “backstop” measure, that intends to restrict the build-up of leverage in the banking system. 

A 5-percent minimum leverage ratio effectively means that the maximum exposure that a bank can keep is 20 times its Tier 1 capital.

Basel 3 reforms are integral to the banking reform agenda of Bangko Sentral which is ultimately aimed at promoting financial stability in the country.

The Monetary Board on May 29, 2015 approved the guidelines for the implementation of the Basel 3 leverage ratio in the Philippines. The board also approved the ratio to be 5 percent at a minimum. The new requirement would apply to universal and commercial banks as well as their subsidiary banks and quasi-banks.

Under the Basel 3 reform agenda, the leverage ratio needs to be appreciated alongside the capital adequacy ratio. Both ratios measure a bank’s capital against an indicator of bank exposure, providing quantitative guidance on the extent of assets that a bank can carry for a given level of capital.

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