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Philippine Banks Remain Robust As CARs Exceed Standard Ratios

10.20.2011

The Philippine banking system’s capitalization remained robust despite geopolitical tensions in the Middle East and North Africa (MENA) region and concerns over sovereign risk in Europe.   As of the first quarter-end 2011, the system-wide capital adequacy ratio (CAR), a risk-based measure of solvency, remained above 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 16.48 percent on solo basis and 17.39 percent on consolidated basis as of end-March 2011, which were higher than the CARs posted as of end-December 2010.   Similarly, the Tier 1 (T1) capital ratios of the banking system remained high at 14.21 percent and 14.23 percent on solo and consolidated bases, respectively.

The sustained strength of the banking system’s CARs resulted from the higher growth rate of qualifying capital vis-à-vis that of risk weighted assets (RWA).  Quarter-on-quarter, qualifying capital grew by 4.38 percent or P31.3 billion on solo basis and 4.06 percent or P31.8 billion on a consolidated basis mainly due to hefty net profits posted by banks and additional issuances of common shares.   RWA, on the other hand, increased by 1.31 percent or P58.6 billion on solo basis and 1.32 percent or P61.3 billion on a consolidated basis.

Universal and Commercial (U/KB) Banking Industry.   As of end-March 2011, the U/KB industry’s CARs increased by 0.19 percentage point and 0.15 percentage point to 16.42 percent and 17.42 percent on solo and consolidated bases, respectively. 

On solo basis, the CAR of the industry increased as a result of the 2.89 percent growth in qualifying capital which slightly exceeded the growth in RWA of 1.69 percent.   The expansion in the industry’s capital base was mainly driven by the banks’ robust net profits for the first quarter of 2011 of P21.2 billion, bulk of which came from domestic UBs, and the P11.9 billion additional issuances of common shares by two UBs.   On the other hand, the increase in RWA was generally driven by expansion of loan exposures to private corporations and investments in foreign currency-denominated debt securities issued by the National Government, both of which attract a 100 percent risk weight, and the increase in operational RWA due to the shift in the base years used for computing gross income.

Thrift Banking (TB) Industry.   The TB industry’s CAR improved from 12.62 percent as of end-December 2010 to 16.11 percent as of end-March 2011, on both solo and consolidated bases.  The improvement in the TB industry’s CAR stemmed largely from the placement of Banco Filipino Savings and Mortgage Bank under PDIC receivership on  17 March 2011.   

Rural/Cooperative (RB/Coop) Banking Industry.  The RB/Coop Bank industry’s CAR stood at 18.60 percent as of the first quarter of 2011, which was 0.50 percentage point higher than that registered in the previous quarter. By peer groups, the RB industry’s CAR was at 18.86 percent while the Coop Banks’ CAR stood at 16.00 percent.  The minimal increase in the RB/Coop bank industry’s CAR was due to the higher growth rate in qualifying capital of 4.04 percent vis-à-vis the 1.27 percent growth in RWA.

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