The capital adequacy ratios (CARs) of universal and commercial banks (U/KBs) collectively stood at 16.50 percent on solo basis and 17.65 percent on consolidated basis as of 31 December 2013. These ratios remain driven by Tier 1 capital, the highest quality among instruments eligible as bank capital. As a percentage of risk weighted assets (RWA), Tier 1 ratios stood at 15.37 percent and 15.82 percent on solo and consolidated basis, respectively.
December CAR values are lower than those in September as qualifying capital did not match the rate of increase in RWAs. The industry’s RWA increased by 5.69 percent on solo and 5.62 percent on consolidated basis due to a rise in lending to corporates.
Qualifying capital, on the other hand, declined by 0.42 percent on solo basis and grew slightly by 0.12 percent on consolidated basis. This was mainly brought about by the redemption by some banks of unsecured subordinated debts classified as Lower Tier 2 capital.
Said redemptions are expected due to the implementation of the new capital standards under Basel III last January 2014, which derecognizes certain debt securities as qualifying capital. The decrease in capital was partially eased by the industry’s healthy net profits and issuance of Basel III compliant Tier 2 capital.
The industry’s CAR figures indicate U/KBs’ continued efforts to maintain robust capitalization. A strong capital position promotes Financial Stability by providing individual banks and the industry with an adequate buffer against unexpected losses that may arise during times of stress.