By Melissa Luz T. Lopez, Senior Reporter
THE CENTRAL BANK has set stricter rules for lenders in choosing strategic investors, as the regulator raised standards on pledges for additional capital.
The Bangko Sentral ng Pilipinas (BSP) issued Circular 1002 dated May 10, which tightens standards for banks in declaring capital infusions from third party investors (TPIs).
BSP Deputy Governor Chuchi G. Fonacier said the new guidelines are meant to ensure the commitment of strategic investors in pouring fresh funds into a lender.
“The crucial part here is: at what point will the investment being made by those TPIs would already be considered as capital of the bank?,” Ms. Fonacier said in an interview when asked to explain the revised rules.
The provisions are specifically important for banks who are in need of bigger capital as prescribed by the central bank, especially distressed banks who are facing regulatory sanctions.
“The tendency is that a bank needing capital will just inform the BSP that they have a TPI, then the TPI will say ‘yes, I’m willing to be an investor of that bank.’ The mere signifying of interest is not sufficient,” Ms. Fonacier added.
“There should really be a concrete action on the part of that particular investor. When you say concrete, to show your commitment is to have an escrow account that is intended really to infuse [capital]. It’s ready, not just a promise.”
The circular requires the submission of documents like escrow deposits as well as certificates that indicate that a TPI’s committed investments are available for the said purpose. This should illustrate the investor’s commitment to bring in additional funding, Ms. Fonacier said.
“In this regard, it is understood that mere submission to Bangko Sentral of a TPI’s Letter of Intent to invest in the bank shall not be considered sufficient action to address the bank’s capital deficiency,” the issuance read, as signed by BSP Governor Nestor A. Espenilla, Jr.
The changes come as higher capital and liquidity requirements required of universal and commercial banks are set to be in full swing next year in compliance with the Basel 3 framework.
Currently, big players are now building up their capital base through stock rights offerings, medium-term notes and deposit certificates, among others.