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Philippine Banking System CARs Remain Above the Minimum Required Ratio

06.15.2010

The capital adequacy ratios (CARs) of the banking system remained healthy 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-December 2009, the banking system’s CARs were at 14.85 percent on solo basis and 15.78 percent on consolidated basis, both of which were slightly higher than the comparable September 2009 ratios.  Likewise, the end-December 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 12.26 percent and 12.39 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 the increase in the net profits of some banks and the P9.3 billion issuances of T1 capital instruments and unsecured subordinated debts (UnSD) qualifying as lower Tier 2 (LT2) capital by several banks, the qualifying capital position of the banking system as of end-December 2009 posted 3.63 percent (P21.8 billion) and 3.76 percent (P24.8 billion) quarter-on-quarter growths, on solo and consolidated bases, respectively.     The RWA, on the other hand, expanded by 3.44 percent (P139.3 billion) on solo basis, and by 3.59 percent (P150.4 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 14.99 percent on solo basis went up by 0.05 percentage point as compared with its previous quarter’s CAR.  The increase on solo basis resulted from the 3.92 percent (P20.9 billion) growth in qualifying capital, which was slightly higher than the 3.59 percent (P128.0 billion) increase in RWA.   The increase in capital was generally sourced from the issuances of P5.5 billion T1 capital instruments by two (2) universal banks (UBs) and two (2) commercial banks (KBs) and P3.8 billion UnSD qualifying as LT2 capital by one (1) UB, and the increase in net profits.  Meanwhile, the increase in RWA was generally attributed to the expansions in “Other Assets”, foreign-currency (FCY) denominated exposures to the National Government (NG), and loans to unrated corporates and individuals, which all attracted a 100 percent risk weight.

On a consolidated basis, the industry’s CAR of 16.01 percent as of end-December 2009 increased by 0.03 percentage point from its previous quarter’s CAR.  The improvement resulted from the 3.91 percent growth in qualifying capital, which surpassed the 3.69 percent increment in RWA. 

Thrift Banking (TB) Industry.   The TB industry’s CARs as of end-December 2009 decreased by 0.10 percentage point (to 12.06 percent from 12.16 percent as of end-September 2009) on both solo and consolidated bases.   The decline in the TB industry’s CARs was due to the 1.75 percent expansion in RWA, which was higher than the 0.84 percent growth in qualifying capital. 

Rural/Cooperative (RB/Coop) Banking Industry. Meanwhile, the rural/cooperative banks’ (RBs/Coop banks) CAR on a solo basis of 17.77 percent as of end-December 2009 showed the same trend with TB’s CAR as it registered a decrease of 0.26 percentage point compared to that of the previous quarter.   By peer groups, the RBs’ CAR of 17.96 percent strongly influenced the drop in the industry’s CAR as it posted a decline of 0.31 percentage point compared to that as of end-September 2009.   Meanwhile, the Coop banks’ CAR of 15.84 percent registered growth at 0.28 percentage point.  The decrease in the RB/Coop banks industry’s CAR stemmed from the 2.08 percent growth in the qualifying capital compared to the 3.59 percent increase in RWA.

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