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Philippine Banking System CARs Remain Above the Minimum Required Ratio

03.23.2010

The capital adequacy ratios (CARs) of the banking system remained adequate as they continued to exceed the BSP’s minimum requirement of 10 percent and the Basel Accord’s standard ratio of 8 percent.  As of end-September 2009, the banking system’s CARs were at 14.82 percent on solo basis and 15.76 percent on consolidated basis, both of which were slightly higher than the comparable June 2009 ratios.  Likewise, the end-September 2009 Tier 1 (T1) capital ratios of the banking system remained significantly higher than the BSP’s required 6 percent minimum ratio as they stood at 12.22 percent and 12.36 percent on solo and consolidated bases, respectively. 

The slight improvement in the banking system’s CARs was due to the almost matching growth rate of qualifying capital and risk weighted assets (RWA).  With several banks issuing T1 capital notes and some of them posting an increase in net profits, the qualifying capital position of the banking system as of end-September 2009 posted 0.84 percent (P5.0 billion) and 1.06 percent (P7.0 billion) quarter-on-quarter growths, on solo and consolidated bases, respectively.   The RWA, on the other hand, expanded by 0.73 percent (P29.4 billion) on solo basis, and by 0.56 percent (P23.4 billion) on consolidated basis as compared to that in the previous quarter. 

Universal and Commercial (U/KB) Banking Industry. The U/KB industry’s CAR of 14.94 percent on solo basis went down by 0.04 percentage point as compared with its previous quarter’s CAR.  The minimal decrease on solo basis resulted from the 0.36 percent (P1.9 billion) growth in qualifying capital outpaced by the 0.63 percent (P22.4 billion) increase in RWA.  The increase in capital generally came from the P3.7 billion issuances of T1 capital notes by one (1) UB and two (2) KBs and the increase in net profits. Meanwhile, the increase in RWA is mainly due to the growth of investments in securities issued by various unrated counterparties.

On a consolidated basis, the industry’s CAR of 15.98 percent as of end-September 2009 increased by 0.10 percentage point from its previous quarter’s CAR.  The improvement resulted from the 1.17 percent growth in qualifying capital, which surpassed the 0.57 percent increment in RWA. 

Thrift Banking (TB) Industry.   The TB industry’s CARs as of end-September 2009 increased by 0.68 percentage point (to 12.16 percent from 11.48 percent as of end-June 2009) on both solo and consolidated bases.   The improvement in the TB industry’s CARs was due to the 7.37 percent growth in qualifying capital, which was higher than the 1.28 percent expansion in RWA. 

Rural/Cooperative (RB/Coop) Banking Industry. Meanwhile, the rural/cooperative banks’ (RBs/Coop banks) CAR on a solo basis of 18.03 percent as of end-September 2009 showed the same trend with UKB’s CAR as it registered a slight decrease of 0.12 percentage point compared to that of the previous quarter.   By peer groups, the RBs’ CAR of 18.27 percent strongly influenced the drop in the industry’s CAR as it posted a decline of 0.14 percentage point compared to that as of end-June 2009.   Meanwhile, the Coop banks’ CAR of 15.56 percent registered growth at 0.12 percentage point.  The slight decrease in the RB/Coop industry’s CAR stemmed from the 1.01 percent growth in the qualifying capital compared to the 1.68 percent increase in RWA.

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