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BSP Reports Maiden Report on Capital Ratios of Stand-Alone Banks Under Basel 1.5 Framework


The BSP Monetary Board in its meeting on 4 December 2014 noted the maiden report on the implementation of the BSP capital framework for the stand-alone banks, thrift banks (TBs) and rural/cooperative banks (R/CBs) that are not subsidiaries of universal/commercial banks (U/KBs), covered under the Basel 1.5 capital framework as provided under Circular No. 688 dated 26 May 2010, which took effect on 1 January 2012.

In summary, the maiden report showed general compliance with capital adequacy ratio (CAR) under the Basel 1.5 Framework of stand-alone banks over the 2-year reporting period covering March 2012 to December 2013.  

The Basel 1.5 framework is a simplified version of Basel II in view of the simple operations of stand-alone banks.  Basel 1.5 framework involves only a few key changes to the then existing Basel I framework. This include, among others, the increase in risk weight on foreign currency-denominated exposures to the Philippine National Government based on the country’s sovereign rating (from 0 percent to 50 percent), Real and Other Properties Acquired (from 100 percent to 150 percent) and the inclusion of capital requirement for operational risk using the Basic Indicator Approach.

The stand-alone TBs’ capital position over the 2-year period remained stable with CARs (solo basis) range from 17.69 percent to 22.02 percent. Similarly, the net tier 1 ratios remained solid at 15.12 percent to 19.20 percent. On a year-on-year analysis, the overall CAR of stand-alone TBs improved to 18.07 percent in end-2013 from 17.69 percent in       end-2012.

The stand-alone R/CB industry over the 2-year period similarly showed stability based on their reported CARs (solo basis) ranged from 17.98 percent to 20.67 percent.  On a year-on year basis, the overall CAR of stand-alone R/CBs slightly slid to 19.15 percent in    end-December 2013 from 20.67 percent in end-December 2012.

The combined assets of these stand-alone TBs and R/CBs accounted for 5.30 percent and 4.30 percent of the total resources of the Philippine banking system as of end-2012 and end-2013, respectively.  However, in terms of operating network, the total number of offices of these banks consistently make up the bulk of the total banking industry’s structure which is 92.82 percent in 2012 and 92.57 percent in 2013.

In addition, the Monetary Board also noted the Philippine banking system CARs over the 2-year reporting period of 2012 and 2013, computed by combining the CARs of stand-alone banks with the previously reported and confirmed CARs of U/KBs and its TB subsidiaries.  The banking system’s CAR, which was strongly influenced by the CARs of the U/KBs, was highest at 18.01 percent (as of end-June 2013) while the lowest CAR at 16.58 percent was posted in December 2013. 

The CARs of the banking system as a whole, which composed of the CARs of different bank categories indicate the industry 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.

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