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Philippine Banks Sustained Resiliency As CARs Continue to Exceed Standard Ratios

08.16.2012

The Philippine banking system remains resilient as capital adequacy ratios (CARs) continued to grow and exceed the BSP’s minimum ratio of 10 percent and the Basel Accord’s standard ratio of 8 percent amid challenging global uncertainties.  The system-wide average CARs stood at 16.65 percent on solo basis and 17.64 percent on consolidated basis as of end-December 2011, which were both 0.21 percentage point higher than the CARs posted as of end-September 2011.   Similarly, the Tier 1 (T1) capital ratios remained well above international norms at 14.45 percent and 14.48 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).  On a quarter-on-quarter basis, qualifying capital grew by 2.65 percent or P20.7 billion on solo basis and 2.59 percent or P22.3 billion on a consolidated basis mainly due to net profits posted by banks and additional issuances of capital instruments.   RWA, on the other hand, increased by 1.36 percent or P64.7 billion on solo basis and 1.38 percent or P68.4 billion on a consolidated basis.

Universal and Commercial (U/KB) Banking Industry.   As of end-December 2011, the U/KB industry’s CARs increased by 0.31 percentage point and 0.29 percentage point to 16.66 percent and 17.72 percent on solo and consolidated bases, respectively. 

On solo basis, the increase in the CAR of the industry was due to the 3.17 percent growth in qualifying capital which exceeded the growth in RWA of 1.26 percent.   The expansion in the industry’s capital base was mainly driven by the banks’ net profits for the fourth quarter of 2011 and some issuances of unsecured subordinated debt qualifying as lower Tier 2 capital.  On the other hand, the increase in RWA was largely driven by the expansion of loans granted to unrated private and government corporations, and consumer loans, which all attract a 100 percent risk weight.  

Thrift Banking (TB) Industry.   The TB industry’s CAR went down from 16.48 percent to 15.86 percent as of end-December 2011, on both solo and consolidated bases.   The decline in the industry CAR was due to the combined effect of the P0.5 billion drop in the qualifying capital and the P11.4 billion hike in the industry’s RWA.  The growth in RWA mainly came from the industry’s additional investments in foreign currency-denominated debt securities issued by the National Government and loans to individuals for consumption and housing purposes.
 
Rural/Cooperative (RB/Coop) Banking Industry.  The RB/Coop Bank industry’s CAR stood at 18.17 percent as of the fourth quarter of 2011, which was 0.40 percentage point lower than that registered in the previous quarter.   The decrease in the RB/Coop Bank industry’s CAR was largely due to the decrease in qualifying capital of 2.11 percent accompanied by an increase in RWA of 0.02 percent.   By peer groups, both the RB industry and the Coop Banks’ CARs slid to 18.44 percent and 15.73 percent. 

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