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U/KBsí Remain Well-Capitalized Against Risk

06.03.2013

The capital adequacy ratio (CAR) of universal and commercial banks (U/KBs) stood at 17.28 percent at end-2012. When consolidated with their subsidiary banks and quasi-banks, U/KBs registered a CAR of 18.35 percent at end-December last year.

The industry’s Tier 1 capital remained robust at 15.22 of U/KBs’ risk weighted assets (RWA) at the end of last year. On a consolidated basis, their Tier 1 ratio was 15.44 percent during said period.

December CAR values are slightly lower than those in September. This was due to RWAs increasing at a faster pace than qualifying capital. The increase in the industry’s RWA was brought about by a rise in lending to corporations and in investments in foreign currency debt securities issued by the National Government and the Bangko Sentral ng Pilipinas (BSP). The industry’s RWA rose by 4.97 percent on solo and 4.93 percent on consolidated bases.

The rise in RWA was accompanied by a slight increase in qualifying capital of 1.02 percent and 1.32 percent on solo and consolidated bases during the period. The increase was mainly driven by retained earnings as U/KBs posted healthy net profits at end-2012.

The increase in qualifying capital was moderated by the redemption of some banks of debt securities classified as Tier 2. This was likely a response to the implementation of the new capital standards under Basel III on 01 January 2014 which derecognizes certain debt securities as qualifying capital.

The industry’s CAR figures indicate that U/KBs continue to be mindful of the importance of setting aside sufficient capital. A robust CAR position supports Financial Stability because it provides individual banks and the industry with an adequate buffer against risks and unexpected losses. 

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