BSP may allow banks to redeem Tier 1 debt early without regulatory approval

THE BANGKO SENTRAL ng Pilipinas (BSP) is looking to allow banks to redeem some of their unsecured subordinated debt eligible as Tier 1 capital ahead of schedule without prior approval from the regulator.

A draft circular containing proposed amendments to the Manual of Regulations for Banks seeks to allow banks to pre-terminate unsecured subordinated capital securities and negotiated debt eligible as additional Tier 1 capital without needing to secure BSP approval when they are exercising a call option as long as they simultaneously replace the original issue with equal or better capital, “unless the issuing bank’s capital adequacy ratio remains more than adequate after redemption.”

“For this purpose, ‘more than adequate’ shall mean compliance with the minimum capitalization and risk-based capital ratios, plus additional capital buffers as the issuing bank may determine to be appropriate and sufficient in the context of its risk profile and prevailing market conditions,” the central bank said.

“At no point shall the capital adequacy ratio fall below the early warning thresholds set under the (bank’s) Internal Capital Adequacy Assessment Process or Recovery Plan,” it added.

Banks should also remain compliant with liquidity coverage and net stable funding ratio requirements even after redemption.

“The stock of liquid assets should enable the bank to withstand significant liquidity shocks for at least 30 calendar days, which would give time for corrective actions to be taken by the bank management and/or the BSP,” the central bank said.

The rules also require issuing banks to submit a written notice to the BSP within 10 banking days after approval of the redemption by their board of directors, along with a certification that their capital levels and the redemption itself are compliant with regulatory requirements. — Katherine K. Chan