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Banking Systemís CAR Increased as of End-March 2007


The average CARs of the Philippine banking system stood at 17.54 percent on solo basis and 18.83 percent on consolidated basis as of end-March 2007.   These were higher by 69 basis points and 70 basis points than the average CARs as of end-December 2006 of 16.85 percent and 18.13 percent on solo and consolidated bases, respectively.

The increase in CARs of the banking system was due to expansion in the system’s total qualifying capital from P433.8 billion to P453.3 billion or by P19.5 billion (4.49 percent) on solo basis and from P505.0 billion to P522.0 billion or by P17.0 billion (3.37 percent) on consolidated basis.  The impact of such expansion in capital was magnified as risk-weighted assets remained at almost the same level at P2,584.9 billion on solo basis and P2,772.6 billion on consolidated basis. 

The banking system’s total qualifying capital of P453.3 billion on a solo basis, is made up of 87.91 percent Tier 1 (T1) and 12.09 percent Tier 2 (T2) as of end-March 2007.  The capital mix, on a consolidated basis is comprised of 82.36 percent T1 capital and 17.64 percent T2 capital.

Universal and Commercial Banking Industry.  The total qualifying capital of universal and commercial banks (U/KBs) sufficiently covered the combined credit and market risks as provided under Circular No. 360 dated 3 December 2002.  The U/KBs registered an overall CAR of 17.85 percent on solo basis and 19.32 on consolidated basis as of  31 March 2007.  These were higher by 83 basis points on both solo and consolidated bases, compared to their end-December 2006 adjusted CARs of 17.02 percent (on solo basis) and 18.49 percent (on consolidated basis).

On solo basis, the qualifying capital of U/KBs increased to P393.9 billion, which is 4.62 percent higher than the P376.5 billion level as of end-December 2006.   This was in part due to the issuance of additional capital instruments of a commercial bank.  On the other hand, the risk-weighted assets slightly declined from P2.211.6 billion as of end-December 2006 to P2,206.0 billion as of end-March 2007.

On consolidated basis, the qualifying capital of UK/Bs improved by P15.0 billion or 3.35 percent from P447.6 billion as of end-December 2006 to P462.6 billion as of end-March 2007 while the risk-weighted assets dropped by P27.7 billion from its P2,421.5 billion level as of end-December 2006.

The industry’s total qualifying capital on solo basis as of end-March 2007 had a mix of 88.28 percent or P347.7 billion T1 capital and 11.72 percent or P46.2 billion T2 capital.   On consolidated basis, total qualifying capital is composed of P379.1 billion T1 capital (81.96 percent) and P83.4 billion T2 capital (18.04 percent).

Thrift Banking Industry.  As of end-March 2007, the CARs of the thrift banking industry fell to 15.68 percent on both solo and consolidated bases covering solely credit risk as provided under Circular No. 280 dated 29 March 2001, or a decline of 56 basis points from the 16.24 percent industry CAR as of end-December 2006.  The decline in CARs resulted from the 1.25 percent decrease in total qualifying capital from P39.9 billion to P39.4 billion and the 2.24 percent increase in risk-weighted assets from P246.0 billion to P251.5 billion.

Rural Banking Industry.  The average CAR of the rural/ cooperative banking industry as of 31 March 2007 was higher by 91 basis points at 15.71 percent from the 14.80 percent as of 31 December 2006. The higher CAR of the rural/cooperative banks was due to the 14.94 percent increase in total qualifying capital from P17.4 billion to P20.0, outpacing the growth in risk weighted assets from P117.5 billion to P127.3 billion.

The capital adequacy ratio is a risk-sensitive measure of a bank’s solvency.  It relates capital to assets, weighted according to their relative riskiness.  BSP Circular Nos. 280 and 360, both as amended, require all banks to maintain CAR of at least 10 percent both on solo basis (i.e., head office and branches) and consolidated basis (i.e., parent bank and subsidiary financial undertakings but excluding insurance companies) covering credit risk, and combined credit and market risks for U/KBs.  The BSP issuances are based on the 1988 Basel Capital Accord (also known as Basel 1) and its 1996 Amendment prepared by the Basel Committee on Banking Supervision based in Basel, Switzerland, with modifications to suit the local conditions.

The BSP shifted to the Revised Risk-Based Capital Adequacy Framework (Circular No. 538 dated 4 August 2006), which is the local adoption of Basel 2 international capital standards effective 1 July 2007.  A parallel run of the Basel 2 reportorial framework with the existing report for Basel 1 has been conducted until quarter ending 30 June 2007.  Every quarter thereafter U/KBs and its subsidiary banks and quasi-banks shall be submitting CAR reports based on the Basel 2 reportorial framework issued under Circular No. 538 while stand-alone TBs and RB/Coops shall still be covered by the existing Circular No. 280, as amended.

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