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Philippines to revise systemic importance scores, minimum capital requirements


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According to Market Intelligence, April 2023

Philippines to revise systemic importance scores, minimum capital requirements

Bangko Sentral ng Pilipinas proposed to revise its calculation of systemic importance scores for domestic banks to reflect the increasing importance of size and interconnectedness in the financial system.

Based on Basel Committee's standards, systemic importance scores have four components: size, interconnectedness, substitutability and complexity. In the Philippines, each component is given an equal weighting of 25% of the final score. Banks passing a certain threshold are classified as domestic systemically important banks, or D-SIBs, which are then categorized into three buckets with different requirements of minimum additional common equity Tier 1 capital to increase their loss-absorbing capacity.

In a Sept. 27 circular, the Philippine central bank proposed the weighting of size and interconnectedness to be increased to 40% and 30%, respectively. The weighting of two other components will be reduced to 15% each.

The BSP also proposed to lower the minimum additional CET1 capital requirement, or called minimum additional higher loss absorbency requirement, or HLA, for D-SIBs.

According to the circular, the minimum HLA requirement for the D-SIBs in the middle of the three buckets is proposed to be cut to a range of between 1.5% and 2.0% of risk-weighted assets, from 2.5% currently. The ratio for the top bucket, which is now empty, will be lowered to 2.5% from 3.5%.

The circular is set to take effect 15 days after its publication in the BSP official gazette or in a newspaper.