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U/KBs Sustain Adequate Capital Levels Against Risks

03.17.2015

The capital adequacy ratios (CARs) of universal and commercial banks (U/KBs) stood at 16.32 percent on solo basis and 16.99 percent on consolidated basis at end-September 2014.

The CAR figures were both higher than the 15.94 percent on solo basis and 16.66 percent on consolidated basis recorded in end-June last year.

The industry’s capital base continues to be driven by Common Equity Tier 1 (CET 1), which is the highest quality among instruments eligible as bank capital. The CET 1 of U/KBs represented 13.73 percent and 14.49 percent of risk weighted assets (RWA) on solo and consolidated bases, respectively.

Meanwhile, the banks’ Tier 1 ratios stood at 13.94 percent on solo basis and 14.66 percent on consolidated basis. Tier 1 ratios are composed of common equity and qualified capital instruments.

The third quarter 2014 increase in the CAR of U/KBs was due to the capital raising activities of domestic banks, additional capital infusion of foreign banks to their local branches and earnings generated. This enabled the banks to increase their total qualifying capital by 5.67 percent quarter-on-quarter to Php 932.23 billion from Php 882.17 billion in end-June last year.

The U/KBs RWA also rose by 3.23 percent due to increase in lending to the corporate sector.

The banks’ CAR figures indicate that U/KBs maintain sufficient buffer against unexpected losses that may arise during times of stress. Under the broader banking reform agenda, the BSP continues to monitor the capital position of banks vis-à-vis their risk taking activities. A strong capital position promotes financial stability which is a key policy objective of the BSP.

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