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U/KBs Remained Well-Capitalized at End-2014

05.26.2015

The capital adequacy ratios (CARs) of universal and commercial banks (U/KBs) stood at 15.23 percent and 16.19 percent on solo and consolidated bases at end-2014.  These figures are well-above the BSP regulatory threshold of 10.0 percent and international minimum of 8.0 percent.

The industry’s capital structure remains primarily composed of high quality Common Equity Tier 1 (CET 1). At end-2014, the U/KBs’ CET 1 comprised 12.54 percent and 13.60 percent of their risk weighted assets (RWAs) on solo and consolidated bases.  The banks’ Tier 1 ratio, on the other hand, stood at 12.74 percent and 13.75 percent on solo and consolidated bases.

The CAR figures slid from 16.32 percent on solo and 16.99 percent on consolidated bases posted at the end of third quarter last year.  The decline reflected the new treatment of “bank capital” applicable to foreign bank branches (FBBs) as required under Republic Act 10641, or “An Act Allowing Full Entry of Foreign Banks in the Philippines”.  This law became effective in the last quarter of 2014.

The new framework for FBBs provides that bank capital should mainly consist of Permanently Assigned Capital (PAC) and derecognizes the “Net Due To” account from regulatory capital. 
Meanwhile, the RWAs of the U/KB industry rose by 6.75 percent quarter-on-quarter at end-2014 due to a Php 357.21 billion increase in loans to the corporate sector.

As part of its overall thrust to promote financial stability, the BSP continues to ensure that bank’s risk exposures are backed by high quality capital base.  The latest CAR figures indicate that U/KBs operating in the Philippines maintain sufficient buffer against their risk-taking activities when compared to regulatory standards.

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