MANILA, Oct 20 (Reuters) - The Philippine central bank on Monday spelled out new minimum capital requirements for banks, a move that will force some to increase their levels sixfold and which analysts say should accelerate industry consolidation.
Also on Monday, Bangko Sentral ng Pilipinas (BSP) revised rules governing credit-risk taking activities of banks to guard against credit-driven asset bubbles. The new rules give “cash-flow analysis and ability-to-pay” a greater role in determining a borrower’s creditworthiness.
Monday’s announcement on capital levels follows last month’s statement by BSP that it would require banks to meet higher minimum levels. Banks will have five years to comply.
Domestic banks are bracing for greater competition ahead of economic integration of Southeast Asia by the end of 2015 and after the Philippines enacted a law allowing foreign banks to take full control of domestic lenders.
Mininum capital levels for commercial banks were raised from 2.4 billion pesos ($53.5 million) to 4 billion pesos, 10 billion pesos and 15 billion pesos, depending on their number of branches.
The required minimum capital of what’s called “universal” banks was raised from 4.95 billion pesos ($110.44 million) to 6 billion pesos, 15 billion pesos and 20 billion pesos depending on the number of their branches.
Universal banks are similar to ordinary commercial banks but are allowed to do functions of investment houses such as underwriting.
“Asset growth, increasing complexity, technological innovations, liberalisation of foreign bank entry, the opening of rural banks to foreign investments, and the upcoming regional banking integration were considered in adjusting the minimum capitalisation of banks,” the BSP said.
Nisha Alicer, chief equity strategist at DA Market Securities, said that with the stricter guidelines “definitely the consolidation possibility is there.”
“There are universal banks that are prime for M & A... some rural banks were asked already if they could be acquired,” Alicer said.
Anticipation of the law that replaced a 60 percent cap on foreign ownership has drawn financial institutions including Japan’s Mitsubishi UFJ Financial Group, Malaysia’s CIMB Group Holdings CIMB.KL and private equity firms such as TPG to look at the Philippines.
Cathay Financial Holding Co Ltd is set to acquire one-fifth of mid-sized Rizal Commercial Banking Corp. for about $400 million, with the deal expected to be completed in December.
At the end of 2013, there were 36 universal and commercial banks in the Philippines with total assets of around 9 trillion pesos, according to central bank data.
The BSP said the rules on credit risks are “expected to give banks more leeway to lend to customers who are creditworthy but may not necessarily have collateral, particularly real estate, which could unduly restrict access to credit”.
When it comes to real estate lending, the BSP said it will scrutinise the minimum equity - currently averaging around 20 percent - that banks require from borrowers.
The rules reaffirmed that the collateral value of real estate is capped at 60 percent for regulatory purposes.
1 US dollar = 44.8200 Philippine peso Reporting by Karen Lema and Neil Jerome Morales; Editing by Richard Borsuk