MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) reported on Tuesday, May 26, that the capital adequacy ratios (CARs) of universal and commercial banks (U/KBs) stood well above the central bank’s regulatory threshold by end-2014.
BSP said CARs stood at 15.23% and 16.19% on solo and consolidated bases at end-2014. The figures are well-above the central bank’s regulatory threshold of 10.0% and international minimum of 8.0%.
CARs are used to protect depositors and promote the stability and efficiency of financial systems globally. They are based on Basel 3, a global voluntary regulatory standard on bank capital adequacy, stress testing, and market liquidity risk.
BSP noted the CAR figures slid from 16.32% on solo and 16.99% on consolidated bases posted at the end of the 3rd 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, which 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) or unimpaired capital and derecognizes the “Net Due To” account from regulatory capital.
The industry’s capital structure remains also primarily composed of high quality Common Equity Tier 1 (CET 1). CET1 capital consists of the sum of the following:
- Common shares issued by the bank that meet the criteria for classification as common shares for regulatory purposes
- Stock surplus (share premium) resulting from the issue of instruments including CET1; retained earnings
- Accumulated other comprehensive income and other disclosed reserves
- Common shares issued by consolidated subsidiaries of the bank and held by third parties
- Regulatory adjustments applied in the calculation of CET1
By end-2014, the U/KBs’ CET 1 comprised of 12.54% and 13.60% of their risk weighted assets (RWAs) on solo and consolidated bases. The banks’ Tier 1 ratio (ratio of a bank’s core equity capital to its total risk-weighted assets), stood at 12.74% and 13.75% on solo and consolidated bases.
Meanwhile, the RWAs of the U/KB industry rose by 6.75% quarter-on-quarter at end-2014 due to a P357.21 billion ($7.99 billion) increase in loans to the corporate sector.
BSP said it 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,” the central bank noted. – Rappler.com
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