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Philippine Banking System CARs Post Higher Than the Minimun Required Ratio

12.23.2009

The capital adequacy ratios (CARs) of the banking system continued to post a wide margin over the BSP’s minimum capital ratio of 10 percent and the Basel Accord’s standard ratio of 8 percent.   As of end-June 2009, the banking system’s CAR of 14.81 percent on solo basis and 15.68 percent on consolidated basis were 0.25 percentage point and 0.38 percentage point higher than the comparable March 2009 ratios, respectively.  Likewise, the end-June 2009 Tier 1 (T1) capital ratios of the banking system remain significantly higher than the BSP’s required 6 percent minimum ratio as they stood at 12.18 percent and 12.28 percent on solo and consolidated bases, respectively.

The increase in the banking system’s CARs was driven by the higher growth of qualifying capital relative to the growth of risk weighted assets (RWA).    With significant improvement in the net profits of banks and the P19.4 billion issuances of T1 capital notes and unsecured subordinated debts (UnSD) qualifying as lower Tier 2 (LT2) by several banks, the qualifying capital position of the banking system as of end-June 2009 posted 5.31 percent (P30.1 billion) and 6.18 percent (P38.0 billion) quarter-on-quarter growths, on solo and consolidated bases, respectively.  

 The RWA, on the other hand, expanded by 3.58 percent (P139.1 billion) on solo basis, and by 3.63 percent (P145.8 billion) on consolidated basis as compared to that in the previous quarter.   The increase in RWA was generally attributed to the growth in loans to and investments in securities issued by various unrated counterparties, which attract 100 percent risk weight. 

Universal and Commercial (U/KB) Banking Industry.  The improvement in the banking system’s CAR was mainly driven by the increase in the CARs of U/KBs.   The U/KB industry’s CAR of 14.98 percent on solo basis went up by 0.33 percentage point from that of the previous quarter.   The increase resulted from the P30.6 billion-hike (6.1 percent) in the qualifying capital mainly due to banks’ larger net profits in the second quarter of 2009, and the P19.4 billion issuances of T1 capital notes and UnSD qualifying as LT2 by two (2) commercial banks (KBs) and three (3) universal banks (UBs), respectively.    During the same period, RWA also increased (by 3.8 percent or P128.6 billion) albeit at a slower rate compared to qualifying capital.

On a consolidated basis, the industry’s CAR of 15.88 percent as of end-June 2009 increased by 0.40 percentage point from its previous quarter’s CAR.  The improvement resulted from the 6.4 percent growth in qualifying capital, which outpaced the 3.7 percent increment in RWA.
  
Thrift Banking (TB) Industry.   Conversely, the TB industry’s CARs as of end-June 2009 went down by 0.68 percentage point (to 11.47 percent from 12.15 percent as of end-March 2009) on both solo and consolidated bases.   The industry’s CARs declined due to the P1.7 billion drop in qualifying capital matched by a P7.8 billion expansion in RWA on account of increased lending to individuals and private corporations.

Rural/Cooperative (RB/Coop) Banking Industry. The RBs/Coop industry’s CAR of 18.15 percent as of end-June 2009 continued to grow as it recorded a 0.12 percentage point-hike from that of the previous quarter.  By peer groups, both the RB industry's CAR of 18.41 percent and the Coop banks’ CAR of 15.44 percent registered growth at 0.13 percentage point and 0.11 percentage point, respectively, compared to that as of end-March 2009.  The slight increase in the RB/Coop industry’s CAR stemmed from the 3.60 percent growth in qualifying capital compared to the 2.91 percent increase in RWA.
 

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