The Bangko Sentral ng Pilipinas (BSP) has set June 2007 as the date of implementation of the revised capital adequacy framework. The latest version of the framework is very much in line with Basel II. Major changes that are expected to have significant impact on the ratios would be the addition of an operational risk capital charge and the revision of the risk weight for Philippine government foreign currency bonds (ROP) from 0% to 100%.

In a previous circular, securities booked under Available for Sale (AFS) are taken out of market risk charge and are now considered as Banking Book exposures. I'm not sure why this is the case because these positions clearly have exposure to fluctuation in rates and are revalued accordingly. Profit or loss are then recognized in equity. This actually prompts banks to book everything under AFS (especially Philippine Gov't Peso bonds which have 0% credit risk weight) to avoid market risk charges.

As with Basel II, the framework does not directly address market risks in the banking book and leaves these as Pillar II issues.

Read more about Basel II initiatives in the Philippines:

Bangko Sentral ng Pilipinas (BSP)
The Asian Banker

Tags: finance risk management capital adequacy basel ii bsp philippines