Big banks Q3 capital adequacy improves

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Big banks’ overall capital adequacy under the Basel III Framework improved in the third quarter of 2014 from three months earlier as more local banks tapped the capital markets to raise funds while foreign banks injected additional capital into their local branches, the central bank reported.

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The capital adequacy ratio (CAR) of universal and commercial banks (U/KBs) as of the end of September rose to 16.32 percent from 15.94 percent in the previous quarter, data released by the Bangko Sentral ng Pilipinas (BSP) on Tuesday showed.

Consolidated with that of their subsidiary and quasi-banks, the equivalent CAR figure of U/KBs in the Philippines stood at 16.99 percent as of end-September 2014, higher than the 16.66 percent at end-June.

The central bank explained that the quarter-on-quarter improvement in U/KBs’ CAR “was due to the capital raising activities of domestic banks, additional capital infusion of foreign banks to their local branches and earnings generated.”

The BSP said this enabled banks to increase their total qualifying capital by 5.67 percent quarter-on-quarter to P932.23 billion from P882.17 billion in end-June last year.

The sector’s capital adequacy is now reported according to the regulations of the Basel III regime, which took effect on January 1, 2014.

The latest figure is not comparable to the industry’s CAR level a year earlier since the September 2013 ratios were calculated under the previous prudential regime of Basel II.

PH banks’ compliance advanced
An analyst said the latest BSP data showed big banks are doing their part to be Basel III compliant.

“Banks are now gearing up to be Basel III complaint and Philippine banks are much more advanced in their timetables compared to banks around the world,” Nicholas Antonio Mapa, associate economist at the Bank of the Philippines Islands said.

In addition, the central bank reported that the capital ratios of banks continue to surpass the regulator’s thresholds of 6 percent Common Equity Tier 1 (CET1), 7.5 percent Tier 1 and 10 percent CAR.

“The industry’s capital base continues to be driven by Common Equity Tier 1 which is the highest quality among instruments eligible as bank capital,” the BSP said.

According to the BSP, the CET1 ratio of U/KBs represented 13.73 percent and 14.49 percent of risk-weighted assets (RWA) on solo and consolidated bases, respectively.

Meanwhile, the banks’ Tier 1 ratios, which are composed of common equity and qualified capital instruments, stood at 13.94 percent and 14.66 percent on solo and consolidated bases.

The BSP data added that big banks’ RWA also rose by 3.23 percent due to increase in lending to the corporate sector.

The central bank said the CAR figures of the industry indicate that big banks maintain adequate buffer against unexpected losses that may arise in times of stress.

“Under the broader reform agenda, the BSP continues to monitor the capital position of banks vis-a-vis their risk-taking activities. A strong capital position promotes financial stability which is a key policy objective of the BSP,” it concluded.

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