Fitch Ratings, in a report late last month, estimated that there were P120 billion in banks’ tier-2 notes outstanding when Basel 3 rules took effect. So far, P50 billion in Basel 3-compliant notes have been issued. The rest, the rating firm said, “must eventually be replaced.” Basel 3 rules dictate that if banks want to continue issuing debt securities, these notes need to have loss-absorbency features to make them act more like real equity capital. “Loss absorbency refers to the ability of bank-eligible capital instruments other than common equity to behave and act in the same way common equity shares at the point where the bank takes losses and becomes non-viable,” the BSP said. Simply put, this means holders of tier 2 notes lose either part or their entire investment if a bank shuts down. The main goal of these rules is to protect the bank’s clients and the public, not the firm’s shareholders and investors. Also under Basel 3 rules, so-called “non-allied undertakings” such as benefit pension funds, goodwill and other intangible assets would also be deducted from a bank’s capital. Read more: business.inquirer.net/176486/loan-loss-buffers-of-banks-decline#ixzz3APXkYXQF Follow us: @inquirerdotnet on Twitter | inquirerdotnet on Facebook
Posted on: Thu, 14 Aug 2014 23:12:10 +0000
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