BSP to DBP: ‘Strong justification’ needed to extend regulatory relief

He assured reporters back then that the DBP would be able to meet the minimum capital requirements in 2025. But they would still like their regulatory relief extended for what De Jesus described as “comfort.”

For BSP’s deputy governor for financial supervision Chuchi Fonacier, the central bank wants to see the state banks DBP and Landbank exit regulatory relief after they injected a combined P75 billion in seed money for the Maharlika Investment Fund.

Fonacier was asked for her thoughts on an International Monetary Fund (IMF) study underscoring the importance of the two banks exiting regulatory relief “as soon as possible.” After all, regulatory relief is supposed to be temporary.

“All this regulatory relief, it’s time-bound. That’s why we can say it’s reasonable because it’s time-bound. Now what they’re [DBP] saying is once they request for more time, that’s where we go in to assess if it’s justified to extend,” she told reporters.

But as much as it wants the two banks to exit regulatory relief, the BSP will still assess the DBP’s request and look at several factors.

One of them is the capital adequacy ratio (CAR) of the DBP over time. This is the amount of capital banks need to have on hand at all times to meet their obligations. That way, their clients are protected from bank runs, when depositors withdraw too much money at once. 

Regulatory relief provides banks with flexibility from these CAR requirements.

The DBP has yet to release its 2024 figures. But as of end-November, the finance department pegged the state lender’s CAR at 14.78% — above the regulatory requirement of 10%.

In 2023, De Jesus admitted that the DBP’s CAR may drop below the minimum requirements after it injects P25 billion in capital to the Maharlika Investment Fund. Another state lender, Landbank, was required to give up P50 billion for the MIF’s capital.

President Ferdinand Marcos Jr. then exempted both state funds from remitting their dividends to compensate for their contributions.

The BSP will also be looking at the performance of DBP’s loan portfolio — areas where they’re most exposed to financial risk, as well as their non-performing loans (NPL) ratio.

According to the DBP’s financial statements in the fourth quarter, its net loans and receivables stood at P504.4 billion as of end-December 2024. That’s around 4.3% higher than the previous quarter’s P481.3 billion.

Meanwhile, the state lender reported a 2024 net income of P7.1 billion.

At the end of the day, Fonacier believes banks like the DBP need a good reason to have their regulatory relief extended. After all, the BSP does not want banks to fall into a moral hazard, where they’re less compelled to mitigate financial risks because they’re protected from the consequences.

But she also acknowledged that there may be other factors beyond the DBP’s control that could justify an extension.

“It could also be, what is the condition of a particular industry that they’re exposed to. So there are many things to consider, but of course, we guard against moral hazards,” Fonacier said in a mix of English and Filipino.

Landbank earlier said it will no longer seek regulatory relief since its financials were already sound.

When asked why DBP and Landbank’s timelines for regulatory relief were different, Fonacier said the two state banks are of different sizes and in different conditions.

“Their size is different, it’s different from DBP, their trust is different. We really look at it on a per institution basis. But also we need to take a look at what is the impact on the entire system, because if it’s no longer resulting in a level playing field, then there’s something there,” Fonacier explained.  – Rappler.com