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Philippine Banks’ CARs Continue to Exceed Standard Ratios


The capital adequacy ratios (CARs) of the Philippine banking system remained within a tight range of 16 percent to 17 percent despite global difficulties.  The system-wide average CARs stood at 16.34 percent on solo basis and 17.25 percent on consolidated basis as of end-June 2011.   Similarly, the Tier 1 (T1) capital ratios remained high at 13.90 percent and 13.93 percent on solo and consolidated bases, respectively.

The ratios actually declined from the previous quarter but this was due to increases in risk weighted assets (RWA) outpacing the growth in banks capital.   On a quarter-on-quarter basis, qualifying capital grew by 2.44 percent or P18.2 billion on solo basis and 2.71 percent or P22.1 billion on a consolidated basis mainly due to net profits posted by banks and additional issuances of capital instruments qualifying as lower Tier 2 (LT2) capital.   RWA, on the other hand, increased by 3.32 percent or P150.2 billion on solo basis and 3.56 percent or P166.7 billion on a consolidated basis.
Universal and Commercial (U/KB) Banking Industry.   As of end-June 2011, the U/KB industry’s CARs stood at 16.31 percent and 17.32 percent on solo and consolidated bases, respectively. 

Both qualifying capital and RWA grew from last quarter.  On solo basis, the expansion in the industry’s capital base was mainly driven by the banks’ net profits for the second quarter of 2011 of P23.6 billion and the P15.0 billion additional issuances of unsecured subordinated debt qualifying as LT2 capital (with eligible LT2 capital of P10.7 billion) by two UBs.   The increases in capital, however, were partially offset by cash dividends paid by 4 UBs amounting to P10.6 billion.  On the other hand, the increase in RWA was generally driven by expansion of loan exposures to unrated corporations, banks, individuals for consumption and housing purposes, and additional investment in securities issued by various unrated counterparties.

Thrift Banking (TB) Industry.   The TB industry saw its aggregate qualifying capital and RWA decline on a quarter-on-quarter basis.   This decline, however, is due mainly to the merger of a TB with a KB during the second quarter.   Since the KB is the surviving entity, the merger contributed to the decline in both qualifying capital and RWA in the TB industry.

Rural/Cooperative (RB/Coop) Banking Industry.  The RB/Coop Bank industry’s CAR stood at 18.68 percent as of the second quarter of 2011, which was 0.08 percentage point higher than that registered in the previous quarter.   The minimal increase in the RB/Coop Bank industry’s CAR was due to the higher growth rate in qualifying capital of 2.42 percent vis-à-vis the 1.94 percent growth in RWA.   By peer groups, the RB industry’s CAR improved to 19.01 percent while the Coop Banks’ CAR slightly slid to 15.58 percent. 

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