The capital adequacy ratio (CAR) of universal and commercial banks (U/KBs) at end-June 2012 stood at 16.87 percent and 17.96 percent on solo and consolidated basis, respectively.
With the end-June 2012 ratios practically similar to the figures a quarter earlier, U/KBs’ CAR continues to surpass the ten percent domestic regulatory minimum and the eight percent international norm.
The industry’s ratios for Tier 1, which generally represents high-quality capital, also remain high at 14.33 percent and 14.46 on solo and consolidated basis.
The industry maintained its CAR levels despite the rise in its risk-weighted assets (RWA) of 2.15 and 2.08 percent on solo and consolidated basis in the second quarter. U/KBs did this by also increasing their qualified capital by 2.26 percent and 1.83 percent, respectively.
The industry positioned its CAR level well by building-up capital to support an increase in assumed risks. Banks either retained earnings or issued capital instruments to match the rise in their RWAs.
RWAs rose due to higher corporate and consumer loans and to investments in debt securities issued by unrated counterparties. The rise in lending can be attributed to the low interest rate environment.
Prudential regulations on banks’ risk-based capital are essential to the country’s Financial Stability (FS) initiatives because a well capitalized banking system enables the industry to better absorb unexpected losses especially in times of stress. This mitigates systemic risks that undermine the country’s FS.
The Bangko Sentral ng Pilipinas continues to align prudential regulations on capital with international standards to strengthen individual banks and to enhance the system’s capacity to weather potential systemic risks.