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Philippine Banks Remain Healthy As CARs Persist Above 10 Percent


The capital adequacy ratios (CARs) of the Philippine banking system remain healthy and above the BSP’s minimum ratio of 10 percent and the Basel Accord’s standard ratio of 8 percent despite continued global difficulties. The system-wide average CARs stood at 16.44 percent on solo basis and 17.43 percent on consolidated basis as of end-September 2011, which were slightly higher than the CARs posted as of end-June 2011. Similarly, the Tier 1 (T1) capital ratios remained well above international norms at 14.14 percent and 14.23 percent on solo and consolidated bases, respectively.

The slight improvement in the banking system’s CARs resulted from the higher growth rate of qualifying capital vis-à-vis that of risk weighted assets (RWA). On a quarter-on-quarter basis, qualifying capital grew by 2.61 percent or P19.9 billion on solo basis and 2.93 percent or P24.5 billion on a consolidated basis mainly due to net profits posted by banks and additional issuances of common shares. RWA, on the other hand, increased by 1.95 percent or P90.8 billion on solo basis and 1.85 percent or P90.0 billion on a consolidated basis.

Universal and Commercial (U/KB) Banking Industry. As of end-September 2011, the U/KB industry’s CARs increased by 0.04 percentage point and 0.11 percentage point to 16.35 percent and 17.43 percent on solo and consolidated bases, respectively.

On solo basis, the increase in the CAR of the industry was due to the 2.28 percent growth in qualifying capital which slightly exceeded the growth in RWA of 2.03 percent. The expansion in the industry’s capital base was mainly driven by the banks’ net profits for the third quarter of 2011 of P21.7 billion and the P5.1 billion additional issuances of common shares by 1 UB and 1 KB. The increases in capital, however, were partially offset by the P5.5 billion redemption of unsecured subordinated debt qualifying as lower Tier 2 (LT2) capital by 1 UB (with eligible LT2 amount of P2.5 billion) and the P2.5 billion increase in equity investments in financial allied subsidiaries by 2 UBs, which is a deduction from qualifying capital on solo basis. 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, additional investments in foreign currency (FCY)-denominated debt securities issued by the National Government (NG), and increase in off-balance sheet exposures.

Thrift Banking (TB) Industry. The TB industry’s CAR improved from 15.53 percent to 16.48 percent as of end-September 2011, on both solo and consolidated bases. The improvement in the TB industry’s CAR stemmed largely from the placement of LBC Development Bank under PDIC receivership on 9 September 2011. Its closure thus relieved the industry of absorbing its capital deficiency whereas the corresponding decrease in the industry’s RWA was offset by expansion in RWA of several TBs arising from the increases in banks’ investments in FCY-denominated debt securities issued by the NG and loans to individuals for consumption and housing purposes.

Rural/Cooperative (RB/Coop) Banking Industry. The RB/Coop Bank industry’s CAR stood at 18.57 percent as of the third quarter of 2011, which was 0.11 percentage point lower than that registered in the previous quarter. The minimal decrease in the RB/Coop Bank industry’s CAR was due to the higher increase in RWA of 0.95 percent vis-à-vis the 0.33 percent increase in qualifying capital. By peer groups, the RB industry’s CAR slightly slid to 18.81 percent while the Coop Banks’ CAR increased to 16.32 percent.

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