Universal and commercial banks (U/KBs) operating in the Philippines posted lower capital adequacy ratios (CAR) as of the third quarter of last year, based on the latest data from the Bangko Sentral ng Pilipinas (BSP).
The figures show that CARs of U/KBs stood at 17.51 percent on solo basis and 18.62 percent on consolidated basis as of end-September 2013.
CAR is a specialized ratio used by banks to determine the adequacy of their capital, keeping in view their risk exposures.
According to the BSP, these ratios are still driven by the industry’s Tier 1 capital, the highest quality among instruments eligible as bank capital.
“A robust capital position promotes financial stability by providing individual banks and the industry with an adequate buffer against unexpected losses that may arise during times of stress,” the central bank said.
Meanwhile, as a percentage of risk weighted assets (RWA), big banks’ Tier 1 ratios stood at 16.36 percent and 16.50 percent on solo and consolidated basis, respectively.
The BSP data added that U/KBs’ CAR values in the third quarter were slightly lower than those in the previous quarter, as RWAs increased at a higher rate than qualifying capital.
The industry’s RWA rose by 3.56 percent on solo and 3.85 percent on consolidated bases, as lending to various counterparties increased.
The central bank also said that the rise in RWA was accompanied by a slight increase in qualifying capital of 0.85 percent and 0.49 percent on solo and consolidated bases during the period, and mainly driven by big banks’ healthy net profits in the third quarter of 2013. But that was moderated by the redemption of some banks of debt securities classified as Lower Tier 2 capital.
The BSP added that the redemptions are expected due to the implementation of the new capital standards under Basel III beginning January 2014, which derecognizes certain debt securities as qualifying capital.
Basel III is a framework designed to strengthen the banking sector’s capacity to absorb shocks, enhance the management of risk and increase transparency.