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BSP adjusts risk weight of RP banks |
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By Maricel E. Burgonio, Reporter
The Manila Times, Monday, February 07, 2005 THE Bangko Sentral ng Pilipinas has raised the risk weight of the banks’ nonperforming loans (NPLs) to help lenders sell their bad loans. Nestor Espenilla, Bangko Sentral assistant governor, said the policy-making Monetary Board increased the risk weight of banks’ NPL to 125 percent in 2006 and 150 percent in 2007. Espenilla said the move is “under the amended Circular 280, which the Bangko Sentral implemented to motivate more banks to sell more NPLs.” BSP Circular 280 contains the guidelines on the adoption in the Philippines of a risk-based capital adequacy framework. The Monetary Board has lowered the risk weight of the highly rated banks to 20 percent from the current 100 percent. This refers to banks with high credit ratings of Baa1 to Baa3 from Moody’s; BBB+ to BBB- of Standard & Poor’s and BBB+ to BBB- of Fitch Ratings. Earlier, the BSP and the Bankers Association of the Philippines have agreed to a two-year extension of the period for banks’ taking advantage of the special purpose vehicle incentives. The SPV law, providing tax incentives to banks and investors for the sale of lenders’ bad assets, is set to end in April. A bill has been filed in Congress to extend the effectivity of the privileges under the law. If approved, this will increase further the potential value of bad assets cleaned up from banks’ books. With the extension of the SPV law, the bank regulators expect to clean up P250 million worth of bad assets. The Philippine banking system has the highest ratio of bad loans among countries severely hit by the Asian financial crisis. While all the other crisis-hit nations resorted to government bailout of their banking industries, the Philippine government has shied away from a state-led rescue, since it doesn’t have the wherewithal to do so. Banks with a high ratio of bad assets are unlikely to pursue aggressive lending, because they fear bloating their soured portfolios. This hesitance in turn has meant fewer borrowing activity, which has only served to constrain business expansion and job generation. |
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