SGV hosts Basel III workshop

MG5 and FSO Advisory hosted its first workshop on Strategic Regulatory Management Series entitled “Basel III: What’s Next Under the Capital, Leverage and Macro-Prudential Guidelines” at WDSC last August 7.

The workshop focused on the dynamics of Basel III’s objectives of improving the banking sector’s ability to absorb shocks arising from financial and economic stress, and reducing the risk of spillover from the financial sector to the real economy through stronger capital requirements.

In January 2013, the Bangko Sentral ng Pilipinas (BSP) issued Circular No.781, Basel III Implementing Guidelines on Minimum Capital Requirements, which provides guidelines on the revised risk-based capital adequacy framework particularly on the minimum capital and disclosure requirements in accordance with the Basel III standards effective 1 January 2014. These tightened capital standards mark the commencement of a series of regulatory reforms that will affect how Philippine banks conduct business.

Within Basel III are other sets of enhanced regulatory standards – both new and reformed – that are yet to be implemented in the Philippines. These include regulations to address key areas such as leverage, pro-cyclicality and systemic risk, systemically important financial institutions (SIFIs), liquidity, and market discipline.

Given the adoption of the tightened capital standards by the BSP, Philippine banks can begin strengthening their balance sheets through different strategies such as issuing new Basel III compliant instruments (e.g., Contingent Convertible (CoCo) Bonds), revisiting and realigning their business models to optimize risk-weighted assets, and entering into mergers and/or strategic alliances with other institutions.

More than 40 participants, including bank senior officers, risk management officers, and compliance officers from private institutions in retail banking and investment banking, as well as representatives from BSP attended the workshop.

FSO Advisory Partners Ian Lauron (CGL) and Francis Lumbres welcomed the participants to the event. CGL discussed the Basel III minimum capital requirements, and the dynamics of systemic risk and macro-prudential regulations resulting in additional capital buffers and surcharges. These additional buffers and surcharges may include SIFI surcharges and a potential country-wide counter-cyclical buffer, implemented in the context of already existing macro-prudential regulations. CGL also conducted several case studies reflecting the balance sheet of a hypothetical bank, which serves as an application of the discussed topics. Director Mike Dela Cruz provided an overview on Recovery and Resolution Plans (RRPs) or Living Wills for banks while Director Christian Chua covered the practical considerations related to the pricing and valuation of Basel III bonds. The seminar ended with a status update on how some of the top ASEAN banks are faring with regard to their Basel III implementation particularly in the wake on the impending ASEAN integration.

The team also includes Associate Director Belvin Armenion, Senior Associates Gabrielle Aragon and John Paul Dela Cruz, and Associates Wella Lou Tandingan, Carlo Enrico Rivera, Candice Annelle Kua, Emilfredo Ong, Ezra Templonuevo, Alec Machacon, and Rishee Sadhwani. Advisory FMA Carol Aquino and EA Yvette Batalon helped in organizing the event.