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Philippine Banks' CAR Remains Above the Minimum Regulatory and International Standard Ratios

07.20.2011

The Philippine banking system remained stable as capital adequacy ratios (CARs) of different bank categories continued to exceed the BSP's minimum ratio of 10 percent and the Basel Accord's standard ratio of 8 percent.   The banking system registered average CARs of 16.02 percent on solo basis and 16.97 percent on a consolidated basis as of end-December 2010.   Similarly, the Tier 1 (T1) capital ratios of the banking system remained high at 13.64 percent and 13.69 percent on solo and consolidated bases, respectively.

The banking system's CARs hardly moved from the last quarter CARs of 16.04 percent and 16.97 percent on solo and consolidated basis, respectively.   The growth rate of qualifying capital was matched by almost the same growth rate of risk weighted assets (RWA).  Qualifying capital grew by 3.93 percent (P27.0 billion) on solo basis and 3.72 percent (P28.0 billion) on a consolidated basis.   RWA, on the other hand, increased by 4.00 percent (P171.1 billion) on solo basis and 3.76 percent (P167.3 billion) on a consolidated basis.

Universal and Commercial (U/KB) Banking Industry.   As of end-December 2010, the U/KB industry's CAR decreased only by 0.06 percentage point and 0.05 percentage point from the previous quarter's CARs of 16.29 percent and 17.32 percent on solo and consolidated bases, respectively. 

On solo basis, the CAR of the industry decreased from the previous quarter as the growth in qualifying capital of 3.94 percent was offset by the 4.32 percent growth in RWA.   The increase in the industry's capital base was attributed to banks' robust net profits of P21.3 billion for the fourth quarter of 2010 and the P3.3 billion additional issuances of common shares by one (1) KB and one (1) foreign bank subsidiary.   On the other hand, the increase in RWA was due to the general expansion of assets, the bulk of which was in the form of loans granted to various unrated counterparties.

Thrift Banking (TB) Industry.   The TB industry's CAR went up from 12.18 percent as of end-September 2010 to 12.62 percent as of end-December 2010, on both solo and consolidated bases.  The 0.44 percentage point improvement in the CAR was due to the 7.61 percent growth in qualifying capital, which was higher than the 3.83 percent expansion in RWA.  The increase in qualifying capital was generally sourced from the net profits of TBs and issuances of common stock by two (2) TBs, while the growth in RWA mainly came from the expansion of banks' loan portfolios.

Rural/Cooperative (RB/Coop) Banking Industry.  The RB/Coop Bank industry's CAR stood at 19.16 percent as of the fourth quarter of 2010, which was 0.27 percentage point higher than that registered in the previous quarter.   By peer groups, the RB industry's CAR was at 19.39 percent while Coop Banks' CAR stood at 17.13 percent.  The improvement in the RB/Coop bank industry's CAR stemmed from the 3.31 percent decline in RWA vis-à-vis the lower decrease in qualifying capital of 1.94 percent.

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