MANILA, Philippines – Despite stricter requirements under the Basel 3, universal and commercial banks (U/KBs) in the country under the Basel 3 framework increased their capital adequacy ratio (CAR) as of the second quarter of the year, the Bangko Sentral ng Pilipinas (BSP) reported.
Basel 3 is a global voluntary regulatory standard on bank capital adequacy, stress testing, and market liquidity risk, developed in response to the deficiencies in financial regulation revealed by the financial crisis of 2007-2008.
Basel 3 was meant to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage.
The capital adequacy ratios (CARs) of universal and commercial banks (U/KBs) under the Basel 3 framework were recorded at 15.94% on solo basis and 16.66% on consolidated bases at the end of second quarter of 2014 – above BSP’s required 10% CAR.
The strengthening of the industry’s capital base remains driven by Common Equity Tier (CET) 1 that represents the highest quality of bank capital.
CET1 ratios of U/KBs, meanwhile, account for 13.74% of risk-weighted assets on solo basis and 14.48% on consolidated basis.
The banks’ Tier 1 ratios, composed of common equity and qualified capital instruments, stood at 13.96% and 14.65% on solo and consolidated bases.
The latest CAR figures are higher than the end-March 2014 ratios of 15.45% on solo basis and 16.35% on consolidated basis.
The CET1 ratio of U/KBs at 13.74% on solo basis (14.48% on consolidated basis) is above the 6% required and the 2.5% capital conservation buffer that can be met only by CET1 capital.
The rise is due to the banks’ capital raising activities and earnings generated during the second quarter, enabling the industry to raise its qualifying capital by 7% quarter-on-quarter (QoQ) to P882.17 billion ($19.58 billion) from P824.42 billion ($18.29 billion) in end-March 2014.
The BSP also reported that the industry’s risk-weighted asset (RWA) or a bank’s assets or off-balance-sheet exposure weighted based on risk, increased by 3.71% quarter-on-quarter on solo basis due to an increase in lending to the corporate sector.
The CAR figures showed that the Philippine banking industry is maintaining adequate buffer against unexpected losses that may arise in times of stress, the BSP said.
“BSP continues to monitor the strong capital position of banks in relation to their risk-taking activities under the broader banking reform agenda,” the central bank said. – Rappler.com
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