Philippines central bank increases leverage ratio
18 January 2018 Manila
Image: Shutterstock
The Bangko Sentral ng Pilipinas’s (BSP) monetary board has approved new rules on minimum leverage ratio requirement for universal banks, commercial banks and their subsidiary banks and quasi-banks, effective 1 July.
The new leverage ratio, set at 5 percent, is a non-risk based measure, which works as a backstop to the capital adequacy ratio.
The BSP introduced the leverage ratio framework in 2015, with the implementation limited to monitoring purposes.
However, after the monetary board’s recent decision, the leverage ratio will form part of the Basel III minimum capital requirements, as well as the 6 percent common equity tier one ratio, 7.5 percent tier one ratio and the 10 percent capital adequacy ratio.
The monetary board’s decision is designed to constrain the potential build-up of leverage in the banking industry and to sustain the stability of the financial system.
The leverage ratio follows a non-risk weighted calculation, compared with the common equity tier one ratio and capital adequacy ratio computation. It uses the reported amount of accounts on the balance sheet as well as off-balance sheet items, including derivatives and securities financing transactions.
The approved policy allows covered financial institutions to assess their compliance with the framework and implement measures to meet the requirements before June this year.
After the deadline, covered banks are required to submit the Basel III leverage ratio report, along with the Basel III capital adequacy ratio quarterly on both solo and consolidated bases. FInancial institutions are also required to disclose their leverage ratio in their published balance sheets and annual reports.
The new leverage ratio, set at 5 percent, is a non-risk based measure, which works as a backstop to the capital adequacy ratio.
The BSP introduced the leverage ratio framework in 2015, with the implementation limited to monitoring purposes.
However, after the monetary board’s recent decision, the leverage ratio will form part of the Basel III minimum capital requirements, as well as the 6 percent common equity tier one ratio, 7.5 percent tier one ratio and the 10 percent capital adequacy ratio.
The monetary board’s decision is designed to constrain the potential build-up of leverage in the banking industry and to sustain the stability of the financial system.
The leverage ratio follows a non-risk weighted calculation, compared with the common equity tier one ratio and capital adequacy ratio computation. It uses the reported amount of accounts on the balance sheet as well as off-balance sheet items, including derivatives and securities financing transactions.
The approved policy allows covered financial institutions to assess their compliance with the framework and implement measures to meet the requirements before June this year.
After the deadline, covered banks are required to submit the Basel III leverage ratio report, along with the Basel III capital adequacy ratio quarterly on both solo and consolidated bases. FInancial institutions are also required to disclose their leverage ratio in their published balance sheets and annual reports.
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