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End-September 2004 Capital Adequacy Ratio of Universal, Commercial and Thrift Banks


Universal, commercial and thrift banking industries reported continued compliance with the 10 percent required minimum capital adequacy ratio (CAR) as provided for under Circular No. 360, Series of 2003 and Circular No. 280, Series of 2001 as of end-September 2004.

Universal and Commercial Banking Industry.  Despite the expansion of risk weighted assets by 1.98 percent from end-June 2004 level of P1,941.6 billion to P1,980.1 billion, the industry’s CAR on solo basis declined by only 3 basis points, i.e., from 16.91 percent to 16.88 percent. This resulted from the 1.83 percent increase in qualifying capital from P328.3 billion to P334.3 billion, as industry participants sustained their efforts to strengthen their capital base. Of the total qualifying capital, 83.13 percent or P277.9 billion represented Tier 1 capital, while Tier 2 capital amounting to P56.4 billion made up the remaining balance. On a consolidated basis, the industry’s CAR remained at 18.40 percent level.  The 2.33 percent increase in combined qualifying capital, i.e., from P384.5 billion to P393.5 billion, was offset by the 2.36 percent expansion of the risk -weighted assets, i.e., P2,088.8 billion to P2,138.2 billion.   These CARs cover capital charges for combined credit and market risks as provided for under Circular No. 360.

Thrift Banking Industry.  The CAR of the thrift banking industry (as provided for under Circular No. 280) declined by 133 basis points to 16.59 percent from 17.92 percent as of end-June 2004, both on solo basis and on consolidated basis. The reduction was due mainly to the 3.13 percent increase in total risk-weighted assets from P183.6 billion to P189.3 billion accompanied by a 4.53 percent decline in the level of total qualifying capital, from P32.9 billion to P31.4 billion.

The capital adequacy ratio or CAR is a risk-sensitive measure of a bank’s solvency. It relates capital to risk assets weighted according to their relative riskiness. BSP Circular No. 280 dated 29 March 2001 and BSP Circular No. 360 dated 3 December 2002, both as amended, require all banks to maintain CAR of at least 10 percent both on solo basis (i.e., head office plus branches) and consolidated basis (i.e., parent bank plus subsidiary financial undertakings but excluding insurance companies) covering credit risk, and for universal and commercial banks, combined credit and market risks. 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.

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