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Universal/Commercial and Thrift Banks Compliance with Risk-Based Capital Adequacy Ratio (CAR) Sustained Above Statutory Ceiling in June 2005


As of end-June 2005, the capital adequacy ratios of both the universal/commercial and thrift banking industries remained well above the 10 percent minimum risk-based capital adequacy ratio (CAR) prescribed under Circular No. 280 dated 29 March 2001 and Circular No. 360 dated 3 December 2002, both as amended.  Both industries however posted slightly lower CARs as compared to the previous quarter since the build-up of capital was a little behind the increase in risk-weighted assets during the period.

Universal/commercial Banking Industry. The CAR on a solo basis of the universal and commercial bank industry declined to 16.46 percent from 17.10 percent as of end-March 2005.  The industry’s CAR on a consolidated basis likewise decreased to 17.46 percent from 18.27 percent over the same period.  These CARs cover capital charges for combined credit and market risks as provided for under Circular No. 360.

The CAR reductions, i.e., by 64 basis points and 81 basis points, respectively, were traced to the moderate expansion of qualifying capital as compared to that of the industry’s risk-weighted assets.  On a solo basis, the industry’s risk-weighted assets grew by 5.19 percent to P2.23 trillion from P2.12 trillion over a 3-month period.  On a consolidated basis, the industry’s risk-weighted assets expanded by 5.57 percent to P2.41 trillion over the same period.  The industry’s qualifying capital likewise increased albeit at a much slower pace as compared to its risk-weighted assets.  The industry’s qualifying capital increased by 1.10 percent on a solo basis (i.e., to P367.6 billion from P363.6 billion in end-March 2005) and by 0.94 percent on a consolidated basis (i.e., to P420.4 billion from P416.5 billion).  On a solo basis, the total qualifying capital consisted of P309.4 billion Tier 1 capital (or 84.18 percent) and P58.2 billion Tier 2 capital (or 15.82 percent).  On a consolidated basis, Tier 1 capital amounted to P352.0 billion (or 83.73 percent of total industry’s qualifying capital) while Tier 2 capital stood at P68.4 billion (or 16.27 percent).

Thrift Banking Industry.  The thrift banking industry’s CAR (covering only credit risk under Circular No. 280) stood at 16.81 percent, both on a solo and consolidated basis.  There was a 4 basis points decline from the industry’s 16.85 percent CAR as of end-March 2005. This developed as the 4.14 percent increase in the industry’s qualifying capital was a bit slower than the 4.33 percent growth in the industry’s risk-weighted assets.  In terms of absolute amounts, the industry’s total qualifying capital rose to P35.2 billion from P33.8 billion while its risk-weighted assets increased to P209.6 billion from its P200.9 billion level the previous quarter. 

All banks are required to maintain CAR of at least 10 percent both on a solo (i.e, head office plus branches) and on a consolidated basis (i.e., parent bank plus subsidiary financial allied undertakings but excluding insurance companies).  The CAR is a risk sensitive measure of a bank’s solvency.  It relates capital to risk assets weighted according to their relative riskiness.    The BSP prescribed CAR framework was based on the 1988 Basel Capital Accord (also referred to as Basel 1) and its 1996 Amendment, which were prepared by the Basel Committee on Banking Supervision based in Basel, Switzerland.  Modifications have been introduced to suit Philippine setting.

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