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RCBC: Still one of the top banks in Philippine Banking System

Fitch Ratings recognized the regulatory strength of the Philippine Banking System, as the implementation of Basel 3 Capital Rules in 2014 has led to strong capital ratios. Recognized by Fitch as one of the top banks in the system, RCBC is actually also one of the better capitalized banks as of end 2015 with a 15.72% Capital Adequacy Ratio and a 12.55% CET1 Ratio.

Fitch has rated RCBC at "BB" with a stable outlook.

Read the full article below published by Business World.
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Philippine banks well-regulated
Business World | Melissa Luz T. Lopez | April 13, 2016

In its April 2016 issue of the Asia-Pacific Banks Regulatory Compendium, the debt watcher assessed rules implemented by the Bangko Sentral ng Pilipinas (BSP) for universal and commercial banks, pointing out "conservative" capital requirements and a "pro-active supervisory and regulatory approach" as sources of strength in preventing systemic risks.

The central bank was likewise able to introduce the international Basel 3 regime in a "reasonably timely" manner, Fitch added, starting with capital ratios followed by the gradual introduction of other criteria on liquidity and leverage, among others.

The central bank set a 10% capital adequacy ratio requirement for big banks in 2014 when it adopted the Basel 3 framework -- a level higher than the 8% global standard, the credit rater noted. Other requirements include a minimum Tier 1 ratio of 7.5% and a minimum common equity tier 1 (CET1) ratio of 6% plus a capital conservation buffer of 2.5%.

Fitch analyzed the regulatory approach of central banks across Asia following the Basel 3 framework, which was crafted by international policy makers to prevent a repeat of the 2008 global financial crisis when governments had to step in and settle liabilities of fallen banks using public money.

However, the credit rater also flagged some gaps in corporate governance standards and the non-disclosure of some key Basel standards as weak points in the country's policies.

In particular, Fitch pointed out the "limited" number of seats allotted to independent directors in bank boards, as well as the dominance of conglomerates in terms of bank ownership, but noted that threats posed by such conditions are "mitigated by regulatory oversight and banks' internal policies regarding related-party transactions and exposures."

Last December, the BSP came out with Circular 895 requiring banks to craft internal policies that will outline procedures on undertaking related party transactions guided by an "arm's length" approach.

"CET1 deductions include unsecured credit to related parties -- to partly address common concerns arising from conglomerate/family control of banks. Investments in non-consolidated subsidiaries are also deducted in full," Fitch added.

The non-disclosure of the list of domestic systemically important banks (DSIBs) was also identified as a weakness for local regulations, with Fitch saying that the top 10 local lenders are "likely to qualify" under the category.

As of end-September 2015, the biggest banks in terms of assets include BDO Unibank, Inc.; the Metropolitan Bank & Trust. Co.; Bank of the Philippine Islands; Land Bank of the Philippines; Philippine National Bank (PNB), Security Bank Corp.; Development Bank of the Philippines; Rizal Commercial Banking Corp.; China Banking Corp.; and Union Bank of the Philippines.

The BSP finished identifying "too big to fail" banks in 2015, but does not publicly disclose who the DSIBs are to minimize moral hazards.

Under its framework for DSIBs announced in 2014, the central bank requires lenders to set aside more funds than the usual standard as buffer for potential losses to ensure they do not put the financial system at risk. Systemically important banks will be required to increase their CET1 ratio by 1.5 to 3.5 percentage points, depending on which bucket they are classified, on top of the existing minimum of 6% and the capital conservation buffer of 2.5%.

Other banking standards under the Basel 3 regime introduced by the BSP include the liquidity coverage ratio and a 5% leverage ratio, while a few others are in the works ahead of full implementation eyed by Jan. 1, 2019, or five years after the new framework was adopted.

The debt watcher also noted that there was a strong likelihood for the national government to provide support to big lenders in financial stress, citing past decisions of the state to step in to resolve problem banks as with the case of the now-privatized PNB, the Philippine Bank of Communications, and the United Coconut Planters Bank.

Fitch affirmed its "BBB-" rating -- the minimum investment grade status -- with a "positive" outlook on the Philippines last April 8, citing a generally healthy banking system, strong external payments position, and robust prospects for economic growth.