The capital adequacy ratios (CAR) of big banks under the more stringent Basel III Framework slipped in the second quarter from a year earlier, the central bank reported on Wednesday, but the result was still an improvement from the first three months of 2015.
The CAR of universal and commercial banks (U/KBs) slightly slipped to 15.48 percent as of end-June 2015 from the 15.94 percent recorded in the same period last year.
Combined with their subsidiaries and quasi-banks, the equivalent CAR of U/KBs in the Philippines stood at 16.42 percent as of end-June 2015, lower than the previous year’s 16.66 percent.
Despite the decline, the latest CAR figures were above the Bangko Sentral ng Pilipinas’ regulatory threshold of 10 percent and the international minimum of 8 percent.
Compared with the quarter earlier, the CAR as of end-June improved from their solo and consolidated ratios of 15.07 percent and 16.10 percent, respectively.
The sector’s CAR is now measured according to the regulations of the Basel III regime, which took effect on January 1, 2014.
Focusing on the quarter-on-quarter improvement, the central bank said the increase was an indication that banks had adjusted to the impact of Basel III capital reforms.
“The industry’s capital at the end-June this year is composed mainly of Common Equity Tier 1 (CET 1), which is the highest quality among instruments eligible as bank capital,” the central bank said.
The CET 1 of U/KBs represented 12.87 percent and 13.89 percent of risk-weighted assets (RWA) on solo and consolidated bases as of end June.
Tier 1 ratios stood at 13.06 percent and 14.05 percent on solo and consolidated bases, respectively, during the period. Tier 1 is composed of common equity and qualified capital instruments.
“The increase was on account of the banks’ capital raising activities and earnings generated in the second quarter of 2015 which enabled the industry to raise its qualifying capital by 6 percent quarter-on-quarter to P973.60 billion in June this year,” the central bank explained.
It said the latest CAR figures were an indication of the U/KBs’ continuous efforts to maintain adequate capital buffers against unexpected losses that could arise during times of stress.
“Well-capitalized banks are reflective of a resilient banking system that promotes financial stability, which is a key policy objective of the Bangko Sentral ng Pilipinas,” it said.