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Philippine Banking System Remains Adequately Capitalized as of End-2007

08.08.2008

The Philippine banking system remained adequately capitalized as of end-December 2007 as it registered average CARs of 14.71 percent and 15.70 percent on solo and consolidated bases, respectively, maintaining the same margin over the minimum prescribed ratio of 10 percent as in the previous quarter.  Year-on-year, the end-2007 CARs were lower by 214 basis points and 243 basis points on solo and consolidated bases than end-2006 CARs of 16.85 percent (solo basis) and 18.13 percent (consolidated basis) primarily due to the shift of universal/commercial banks and their subsidiary banks to the Basel 2 framework starting in July 2007.

The banking system’s capital level grew by P15.2 billion and P20.6 billion on solo and consolidated bases, respectively, as of end-December 2007 from P462.6 billion and P507.6 billion as of end-September 2007.  However, its net effect on the system’s CARs was tempered by the corresponding increase in risk-weighted assets (RWA) of P103.3 billion and P131.6 billion from previous quarter’s level of P3,144.3 billion and P3,233.7 billion on solo and consolidated bases, respectively.

Universal and Commercial Banking Industry. The universal and commercial banking (U/KBs) industry posted average CARs of 14.73 percent on solo basis and 15.93 percent on consolidated basis as of 31 December 2007.  These were 5 basis points and 8 basis points  higher than the CARs in the third quarter of 2007 of 14.68 percent and 15.85 percent on solo and consolidated bases, respectively.

On solo basis, the qualifying capital of U/KBs grew by 3.92 percent (P15.7 billion) or from P399.7 billion as of end-September 2007 to P415.4 billion as of end-December 2007 mainly on account of the P10.0 billion issuance of Lower Tier 2 capital instrument of a local bank .  On the other hand, the level of RWA likewise went up by P96.8 billion from P2,722.5 billion as of end-September 2007.

On consolidated basis, the qualifying capital  increased to P493.1 billion as of end-December 2007 from P470.7 billion level as of end-September 2007.  This was matched up by a corresponding increase in RWA of P126.2 billion or 4.25 percent from P2,968.8 billion as of end-September 2007 to P3,095.0 billion as of end-December 2007.

Thrift Banking Industry. As of end-December 2007, the thrift banking (TB) industry’s CARs, rose to 15.12 percent and 15.13 percent from CARs of 14.60 percent as of end-September 2007, on solo and consolidated bases, respectively.  The CARs of the industry were computed based on the provisions of the Basel 2 framework for the ten (10) subsidiary TBs of U/KBs and the Basel 1 framework for the stand-alone TBs.

The qualifying capital of the industry grew from third quarter’s level of P41.2 billion to P43.0 billion as of fourth quarter of 2007 mainly due to the P1.0 billion capital infusion of a parent bank to its subsidiary thrift bank.  Likewise, the RWA of the industry mounted to P284.0 billion as of end-December 2007 from P282.1 billion as of end-September 2007.

Rural Banking Industry. The average CAR of the rural/cooperative banking industry as of 31 December 2007 was lower by 207 basis points at 13.51 percent from 15.58 percent as of 30 September 2007.  The decline in CAR of the rural/cooperative banks was due to the 10.44 percent decline in its qualifying capital coupled with a 3.28 percent increase in RWA.  This industry’s CARs remain to be computed under the Basel 1 framework.

The Basel 2 framework, which took effect last 1 July 2007, covering U/KBs and their subsidiary banks, provides for the assignment of higher risk weights to certain assets and the allocation of additional capital charge for operational risk.

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