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Philippine Banks Sustained Robustness As CARs Top Minimum Required Ratio


The capital adequacy ratios (CARs) of the Philippine banking system as of the third quarter of 2010 reflected the stability of the industry as they remained comfortably above the BSP's minimum capital ratio of 10 percent and the Basel Accord's standard ratio of 8 percent.   The banking system registered average CARs of 16.04 percent on solo basis and 16.97 percent on consolidated basis as of end-September 2010, which are greater than the CARs posted a quarter and even a year ago.   Similarly, the Tier 1 (T1) capital ratios of the banking system continued to be well above international norms, standing at 13.61 percent and 13.65 percent on solo and consolidated bases, respectively.

The sustained strength of the banking system's CARs resulted from the growth of qualifying capital and a reduction of risk weighted assets (RWA).  Quarter-on-quarter, qualifying capital grew by 5.26 percent or P34.3 billion on solo basis and 4.66 percent or by P33.6 billion on a consolidated basis mainly due to the robust net profits of banks and some issuances of capital instruments.   RWA, on the other hand, contracted by 0.04 percent or P1.5 billion on solo basis and 0.02 percent or by P1.06 billion on a consolidated basis.

Universal and Commercial (U/KB) Banking Industry.  The CARs of the U/KB industry strongly influenced the improvement in the Philippine banking system's CARs as it posted an increase of 0.92 percentage point and 0.93 percentage point from the CARs of 15.37 percent and 16.45 percent as of end-June 2010 on solo and consolidated bases, respectively.

On solo basis, the CAR of the industry increased as a result of the 5.44 percent growth in the capital base complemented by the 0.49 percent decrease in RWA.   The expansion in the industry's capital base was mainly driven by the P24.4 billion net profits of banks for the third quarter of 2010 and the P11.3 billion capital raised by one UB and one KB through the issuance of common shares and unsecured subordinated debt qualifying as Lower Tier 2 capital, respectively.   On the other hand, the decrease in RWA was mainly accounted for by decreased lending to various unrated corporations.

On a consolidated basis, the industry's CAR rose by 0.87 percentage point to 17.32 percent from the 16.45 percent posted at end-June 2010.   The improvement resulted from the 5.17 percent growth in qualifying capital against the 0.11 percent decrease in RWA. 

Thrift Banking (TB) Industry.  The TB industry's CAR went up from 12.04 percent to 12.18 percent as of end-September 2010, on both solo and consolidated bases.  The 0.14 percentage point improvement in the CAR was due to the 6.31 percent growth in qualifying capital, which was higher than the 5.08 percent expansion in RWA.  The increase in qualifying capital was generally sourced from the net profits of TBs while the growth in RWA mainly came from increased lending to individuals for consumption and housing purposes.

Rural/Cooperative (RB/Coop) Banking Industry.  The RB/Coop Bank industry's CAR stood at 18.89 percent as of the third quarter of 2010, a minimal increase from the 18.79 percent CAR registered in the second quarter.   By peer groups, the RB industry's CAR was at 19.00 percent while the Coop Banks' CAR stood at 17.85 percent.  The improvement in the RB/Coop Bank industry's CAR mainly stemmed from the 0.17 percent growth in the qualifying capital and the 0.39 percent reduction in RWA.   

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