Transcript El rol de la superintendencia y la estabilidad financiera

Peru
Basel II implementation
APEC
Setiembre 2009
Experience in Basel II implementation
The SBS has reinforced a regulatory framework to enable firms making
an appropriate identification, evaluation, treatment and control of risks.
Basel II implementation process is progressing quite well in Peru:
Changes in the General Law allow the application of capital
requirements to credit, market and operational risk according to
Basel II.
A regulatory framework for the implementation of Basel II has been
made available to the public (publications and pre announcing of
new rules)
2
Main changes in Banking Law
DL 1028
Minimum capital requirements for credit, market and operational risks
(Pillar I of Basel II)
Increase of the minimum capital ratio and maintenance of suitable
additional buffer, according to entities’ risk profile and the business
cycle (Pillar II of Basel II)
Definition of capital structure and proposal of limits on its composition
(Basel)
Information transparency (Pillar 3 of Basel II)
Transparency: Obligation to pre announce new rules regarding capital
requirement and loan loss reserves.
Implementation Schedule
April
2009
July
2009
July
2010
Opening application
to Operational risk
(OR) - ASA
Capital requirement:
CR: no change
MR: Standardized
approach
OR: Basic approach
Capital requirement:
CR: standardized
approach
Opening application to
advance models: VaR,
IRB, AMA
T rans ition towards the
implementation of internal
models */
B as ic IR B and Internal
models of market ris k
Advanced models of credit
ris k and/or O perational
ris k
D uring the validation proces s
After finis hing the validation proces s
F irs t year
F rom the s econd year
F irs t year
S econd year
T hird year
P arallel calculation
-----
95%
90%
80%
P arallel calculation
P arallel calculation
90%
80%
-----
Peru
Basel II implementation:
Pillar I: Credit risk
Definition of Portfolios
Basel II
Regulatory
Portfolios
Peru
Corporate
+ 50MM€
Corporate
+ 200MMS/. of sales
SME corp.
between
5MM€ and
50MM€
Big firms
between
More than 20MMS/. of sales
and
200MMS/. of sales
Medium firms
More than 300MS/. of debt
and until 20MMS/. of sales
Small firms
Between
20MS/.
300MS/. of debt
Retail
Until 20M S/. of. debt
SME retail
under
5MM€
and
Change of Weights
Current Law:
Basel I
Basel II Peru
CR regulation
Commercial loans
100%
100% unless an issuer
assessment applies. (20%)
Leasing
50%
100% unless an issuer
assessment applies. (20%)
Special Regime until Dec-12
Debt instruments
100%
According to external
ratings
Retail, including
Revolving consumption
Non revolving consumption
100%
100%
Mortgage
50%
50%, until the guaranteed
portion
Shares
100%
300% - 400%
Change of Weights
Current Law
Basel I
Basel II Peru
CR regulation
Peruvian sovereign in local currency and
Central Bank exposures
0%
0%
Peruvian sovereign in foreign currency
0%
according to formula (do not
include reserves in CB)
0% - 20%
According to external ratings
SUNAT
100%
20%
Public and private Financial System
institutions
20%
According to external ratings
Mivivienda (mortgage program
supported by government)
0%
20% stock.
According to institutional
external ratings for new
credits
Rest of sovereigns
Other changes that affect capital requirement
Current Law
Basel I
Use of mitigators
Use of credit conversion
factors
Do not allow its use
Basel II Peru
CR Regulation
Recognition of financial collaterals and
guarantees
Through internal rules Through public rules
Recognition of provisions in
capital
Until 1% of standard
credits
1.25% RWA
Settlement and delivery risk
-
Between 100% and 1000%
Default definition
-
90 days, affects risk weights (150% if
specific loan loss reserves < 20% of debt,
except mortgages)
Use of internal models
-
Requires supervisor approval
Fundamental and advanced models
Sovereign exposures
Sovereign exposures referred only to Central Banks and Central Government exposures.
The rest of public institutions will be treated as corporates.
Peruvian local currency sovereign exposures, as well as local and foreign currency
reserves and other Peruvian Central Bank operations have a weight factor of 0%.
Peruvian foreign currency sovereign exposures (except reserves), will have a weight
factor according to the following formula:
1.1


weight factor max1 
,
0
2P 3

1

e

P
sovereignexposuresin foreign currencyat month t
regulatorycapitalat month t- 1
Weight factors of Sovereign exposures of foreign countries are found in the Accord
according to international risk rating agencies.
Credit conversion factors (CCF)
Basel I
Basel II Peru
CR Regulation
Confirmations
of
self-liquidating
irrevocable trade letters of credit up to
one year, when the issuing bank is a
high rating foreign financial system
institution according to the CB.
Not clearly defined
20%
Performance bonds, bid bonds and
warranties to guarantee satisfactory
completion of a project
Not clearly defined
50%
Guarantees , bank acceptances, rest of
trade letters of credit, rest of letters of
guarantee
Not clearly defined
(100%)
100%
0%
Between 0% and 50%
Credit lines
11
Internal Models (IRB)
The regulation considers fundamental IRB (FIRB) and
advanced IRB (AIRB)
Parameters are required to be calculated taking into account
a complete business cycle (independently of the minimum
period of observations)
Definition of Default
Past due loan for more than 90 days
Retail debtors: by operation
Non retail debtors: by debtor
Debt instruments are considered in default since the first
day of delay after the settlement period.
Change to a restructuring situation
In the last 5 years, the debtor or the operation has
registered more than one change in contract conditions
(unless the firm can make a better estimation of its change
to a default situation)
The firm considers that the debtor is unable to partially or
totally fulfill its obligations according to the agreement .
Leaving default
From the moment of non default, punctually fulfillment
of liabilities for 12 consecutive months. During this
period, the debtor will be able to register a maximum
delay of 7 consecutive days and a maximum
accumulated delay of 25 days (unless the firm can
make a better estimation of the change to a non
default situation)
The firm considers that the debtor is able to fulfill all its
obligations. This condition will be valid only when the
reason of non fulfillment is due to qualitative criteria.
Peru
Basel II implementation:
Pillar I: Market risk
Current Methodology
Firms will be able to calculate capital requirement for market risks
through one of the following ways:
1. Standardized Method
2. Internal Models
3. Combination of standardized method and internal models.
It must be considered that each type of risk should be evaluated
using only one method.
Changes in regulation
Inclusion of interest rate risk measurement in trading book and
commodities risk measurement, as part of the standardized method.
Use of internal models with previous authorization of the SBS.
Trading book for market risk capital requirement
SBS will consider the following instruments as part of trading book:
a) Instruments registered in trading book
b) The following instruments registered in available-for sale category:
Debt
CDBCRP
Sovereign bonds (VAC-bonds not included)
Global bonds
Brady bonds
Equity:
IGBVL shares
Mutual funds (at least 70% of the fund in shares)
a) Speculative derivatives
b) Derivatives that hedge a and b investments
c) Commodities
Peru
Basel II implementation:
Pillar I: Operational risk
Capital requirement for operational risk
Firms must use one of the following methods.
a. Basic indicator approach – BIA (function of net income)
b. Alternative Standardized approach - ASA (function of net income by business
lines, except retail and commercial banking lines)
c. Advanced measurement approaches – AMA (probabilistic calculations)
The use of ASA or AMA requires express authorization of the SBS
Basel II established methodologies are followed.
Operational Risk
Gradual implementation of operational risk requirement:
Jul 2009
Jul 2010
Jul 2011
40%
50%
100%
SBS would expect that during the implementation, entities are able to
meet the requirements to apply to ASA, and thus avoid the application of
100% according to BIA.
Peru:
Implementation of pro-cyclical loan loss
reserves
Regulatory reform of the SBS
Foreign
exchange
credit risk
regulation
Overborrowing
regulation
January
2005
Resolution N° 0041-2005
Regulation for foreign exchange
credit risk management
May 2005
CIRCULAR
BFCMCREAFEDPYME-
September
2006
Nº
2145
0485
0332
0201
0229
0117
-2005
-2005
-2005
-2005
-2005
-2005
S.B.S. Resolution
Nº 1237 -2006
Regulation for retail debtors debt
overhang risk management.
Sets minimum prudential standards with respect to
granting redits in foreign currency , as an additional
component for defining the ability to pay.
To that effect, minimum requirements in managing this
risk are defined. In case of not satisfying those
requirements, additional provisions are set.
Stipulates that firms must establish policies regarding
granting, amendment and revision of revolving credit
lines, including explicit standards and measures to
include over-borrowing of retail debtors in credit
evaluation.
August
2008
S.B.S. Resolution
Nº 6941 -2008
New Regulation for retail debtors
debt overhang risk management
Additionally,
sets
minimum
requirements
for
management of retail debtors over-borrowing.
Additional provisions will be established on the unused
portion of retail revolving credit lines if requirements are
not fulfilled.
How does Accumulation Rule work?
The variable component of procyclical loan loss reserves will
be activated in the following situation:
The average GDP growth rate YoY of the last 30 months passes from
less than 5% to 5% or more.
When the average GDP growth rate YoY of the last 30 months is over
5%, and the average GDP growth rate YoY of the last 12 months is
higher by 200 basic points to this same indicator calculated a year
earlier.
When the average GDP growth rate YoY of the last 30 months is over
5%, and 18 months had elapsed since the procyclical rule was
deactivated
How does Decumulation Rule work?
The accumulation rule will be deactivated in the following
situations:
The average GDP growth rate YoY of the last 30 months passes from a
level equal or greater than 5% to one less than this threshold.
The average GDP growth rate YoY of the last 12 months is lower by
400 basic points to this same indicator calculated a year earlier.
Reserve rates for credits in standard category
Types of credit
Fixed
component
Variable
component
Corporate credits
0.7%
0.4%
Credits for large firms
0.7%
0.45%
Credits for medium firms
1.0%
0.3%
Credits for small firms
1.0%
0.5%
Retail credits
1.0%
0.5%
Revolving consumption credits
1.0%
1.5%
Non revolving consumption credits
1.0%
1.0%
Mortgage loans for housing
0.7%
0.4%
Procyclical rule evolution
15%
30 months
10%
5%
Average
growth rate3030meses
months
PBI (var.GDP
%) Promedio
Threshold
umbral
5%5%
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0%
Procyclical rule evolution
12 months
8%
4%
0%
-4%
-3.98%
-8%
Average GDP
growth
rate
12 months
variación
anual
de PBI
(Prom.
12 meses)
Threshold
-4%
umbral
-4%
Threshold
umbral
2%2%
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
-12%
The Banking System has S/. 916 millions of loan loss reserve buffer and
S/. 4 134 millions of capital buffer
Banking System: Total loan loss reserves
(Millions of S/.)
Banking System: Total Capital
(Millions of S/.)
4 000
14 000
3 500
363
3 000
2 500
2 000
233
375
355
1 958
553
12 000
10 000
8 000
6 000
1 500
1 000
369
454
2 118
2 284
2 386
2 733
4 000
2 000
500
1 098
778
5 019
901
1 047
6 755
1 488
1 222
7 886
1 386
1 442
2 716
9 304
9 151
Dic-2008
Jun-2009
1 418
0
0
Dic-2006
Required reserves
Dic-2007
Jun-2008
Procyclical reserves
Dic-2008
Jun-09
Voluntary reserves
Dic-2006
Minimum regulatory capital
Voluntary capital
Dic-2007
Jun-2008
Prudential capital required by the SBS
Peru
Basel II implementation:
Pillar II
Additional capital buffer
•
In Peru, the additional buffer is a function of the type of institution
(10.5% for commercial banks, 14% for microfinance institutions). This
indicator is not very sensitive to risk.
•
Regulatory capital should consist of:
1. Minimum capital : Pillar I
2. Additional capital: Should be determined based on the institution's
risk and business cycle .
3. Additional capital according to ICAAP
Business
cycle
indicator
Accumulates
Decumulates
Kregulatory  maxKICAAP , KPillarI  additionalreq.
Kregulatory  maxKICAAP , KPillarI 
How should the additional capital requirement be calculated in
terms of risk profile and economic cycle?
Business
lines
Participation
(%)
Risk weight by business line
(according to stress testing)
Risk indicator
L1
P1%
W1
P1%*w1
L2
P2%
W2
P2%w2
L3
P3%
W3
P3%w3
L4
P4%
W4
P4%w4
…
…
…
…
Ln
Pn%
Wn
Pn%wn
TOTAL
100%
-
ΣPi%*wi = H
W  f PDstress  PDcicle, LGDdown turn 
PDstress  g macroeconomic shocks
Total indicator
How should the additional capital requirement be calculated in terms
of risk profile and economic cycle?
Ranges of H
Minimum capital
Requirement
adjusted to risk
(Base: 10%)
Capital requirement according to supervisor
assessment of ICAAP
Good (I,II)
Bad (III,IV,V)
H1 – H2
11.5%
11.5%
11.5%*(1+ α1)
H2 – H3
12%
12%
12%*(1+ α2)
H3 – H4
13%
13%
13%*(1+ α3)
H4 – H5
14%
14%
14%*(1+ α4)
…
…
…
…
H(n-1) – H(n)
17%
17%
17%*(1+ αn)
αi = weight adjustment according to ICAAP evaluation
Peru:
Impact of Basel II implementation
Timing of implementation of law 1028
Today
JUL 2009
JUL 2010
JUL 2010
JUL 2011
JUL 2011
JUL 2012
JUL 2012
JUL 2013
RWA
adjustment
(CR, MR)
1
0.96
0.96
0.98
1
(OR)
adjustment
Ø
0.4
0.4
0.5
1
10.5
banks
11
11
??
??
14.3
IMFNB
14.3
14.3
??
??
Inverse of
capital ratio
including
additional
requirement
New methodology
Evolution of Capital Ratio (Banking sector)
Ratio de Capital: BANCA MULTIPLE
14
13
Ene-09,
11.93
12
11
Rop
OR
10.5
10
11.69
11
11.12
9.5
9
Rop
Adjusted
OR
ajustado
9.1
10
9.8
9.8
9.4
RWA
Ajuste APR
adjustment
8
7
Jul- 2005
Jul- 2006
Jul- 2007
Capital
Ratio
deratio
capital
Jul- 2008
Minimum
Ratio
ratio minimo
Jul- 2009
Prudential
Req
prudencial
requirement
Jul- 2010
Jul- 2011
Scheduled
Ajuste
calendario
adjustment
Jul- 2012
Evolution of Capital ratio (microfinance institutions)
Ratio de Capital: IMFNB
23
21
Ene-09,
19.07
19
18.47
17
15
Rop
OR
16.41
Rop
Adjusted
OR
ajustado
14.3
13
11
9.5
9
7
Jul- 2005
Jul- 2006
Jul- 2007
Capital
ratio
Ratio
de capital
Jul- 2008
Minimum
Ratio
ratiominimo
9.1
9.4
Jul- 2009
Jul- 2010
Prudential
Req
prudencial
requirement
10
9.8
9.8
Ajuste
APR
RWA
adjustment
Jul- 2011
Scheduled
Ajuste
calendario
adjustment
Jul- 2012
Banking sector capital (S/. MM)
December 2008
CAPITAL
InitialBANCA MULTIPLE MILES DE S/.
Situation
12,000,000
Additional req.
1,380,510
Prudential req.
1,438,003
Prudential req.
1,552,389
Minimum
req.
9,313,961
-
Additional Req.
864,188
Final
Situation
Minimum req.
9,831,794
0
CAPITAL REQUERIDO
Required
capital
12,131,574
PATRIMONIO
regulatory EFECTIVO
capital
Microfinance institutions capital (S/. MM)
December 2008
CAPITAL IMFNB MILES DE S/. (December
Initial
Final 2008)
Situation
Situation
1,600,000
Additional
req.
362,824
Additional
req.
398,212
Prudential req.
438,042
Prudential req.
417,284
1,600,792
Minimum
req.
766,574
-
Minimum req.
825,874
0
Required
capital
CAPITAL REQUERIDO
regulatory EFECTIVO
capital
PATRIMONIO
Capital ratio according to portfolio growth scenarios:
banking sector
RWA (+ OR, +growth)
Capital Ratio=---------Reg. capital (+ earnings capitalization +reserves of standard credits (+growth) )
Ratio de Capital: Banca Multiple
16
15.31
15
Portfolio
growth
0%
14
Ene-09,
11.93
13
13.46
15%
12
11
11
10.5
10
9.1
9
8
2000
2001
2002
2003
Capital
ratio
Ratio
de capital
2004
2005
Minimum
Ratio
minimo
ratio
2006
2007
2008
Prudential
Req
prudencial
requirement
2009
42.63%
Capital ratio according to portfolio growth scenarios:
microfinance institutions
RWA (+ OR, +growth)
Capital Ratio=---------Reg. capital (+ earnings capitalization +reserves of standard credits (+growth) )
Ratio de Capital: IMFNB
26
Portfolio
growth
24
22
Ene-09,
19.07
20
20.00
0%
16.92
20%
14.30
43.83%
18
16
14
12
10
8
2000
9.1
2001
2002
2003
Capital
ratio
Ratio
de capital
2004
2005
Minimum
ratiominimo
Ratio
2006
2007
2008
Prudential
requirement
Req
prudencial
2009
Peru
Basel II implementation
APEC
Setiembre 2009