MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31RISK-BASED CAPITAL ADEQUACY FRAMEWORKFOR THE PHILIPPINE BANKING SYSTEM[Appendix to Sec. 4115Q (2008 - 4116Q)]IntroductionThis Appendix outlines the BSPimplementing guidelines of the revisedInternational Convergence of CapitalMeasurement and Capital Standards, orpopularly known as Basel II. Basel II is thenew international capital standards set bythe Basel Committee on BankingSupervision (BCBS) 1 . It aims to replaceBasel I, which was issued in 1988 with anamendment in 1996, to make therisk-based capital framework morerisk-sensitive. Banks are enjoined tosubmit their group-wide (includingsubsidiary banks and QBs) Basel IIimplementation plans from 2007-2010, notlater than 31 December 2006.The guidelines contained in thisAppendix shall take effect on 01 July 2007.(As amended by M-2006-022 dated 24 November 2006)Part I. Risk-based capital adequacy ratio1. The risk-based CAR of UBs and KBsand their subsidiary banks and QBs,expressed as a percentage of qualifyingcapital to risk-weighted assets, shall not beless than ten percent (10%).2. Qualifying capital is computed inaccordance with the provisions of Part II.Risk-weighted assets is the sum of (1) creditrisk-weighted assets (Parts III, IV, and V),(2) market risk-weighted assets (Parts IVand VI), and (3) operational risk-weightedassets (Part VII).3. The CAR requirement will beapplied to all UBs and KBs and theirsubsidiary banks, and QBs on both soloand consolidated bases. The application ofthe requirement on a consolidated basis isthe best means to preserve the integrity ofcapital in banks with subsidiaries byeliminating double gearing. However, asone of the principal objectives ofsupervision is the protection of depositors,it is essential to ensure that capitalrecognized in capital adequacy measuresis readily available for those depositors.Accordingly, individual banks shouldlikewise be adequately capitalized on astand-alone basis.4. To the greatest extent possible, allbanking and other relevant financialactivities (both regulated and unregulated)conducted by a bank and its subsidiarieswill be captured through consolidation.Thus, majority-owned or -controlledfinancial allied undertakings should be fullyconsolidated on a line by line basis.Exemptions from consolidation shall onlybe made in cases where such holdings areacquired through debt previouslycontracted and held on a temporary basis,are subject to different regulation, or wherenon-consolidation for regulatory capitalpurposes is otherwise required by law. Allcases of exemption from consolidationmust be made with prior clearance fromthe BSP.5. Banks shall comply with theminimum CAR at all times notwithstandingthat supervisory reporting shall only be onquarterly basis. Any breach, even if onlytemporary, shall be reported to the bank’sBoard of Directors and to BSP, SES withinthree (3) banking days. For this purpose,banks shall develop an appropriate systemto properly monitor their compliance.1The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by thecentral bank governors of the Group of Ten countries in 1975. It consists of senior representatives of bank supervisoryauthorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain,Sweden, Switzerland, the United Kingdom, and the United States. It usually meets at the Bank for International Settlements inBasel, Switzerland where its permanent Secretariat is located.Manual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-46 - Page 1