BIG banks’ capital adequacy ratios (CAR) under the more stringent Basel III Framework slipped in the fourth quarter of 2014 from three months earlier but remained well above the central bank’s regulatory threshold, the Bangko Sentral ng Pilipinas (BSP) reported.
The CAR of universal and commercial banks (U/KBs) as of end-December 2014 slipped to 15.23 percent from 16.32 percent in the previous quarter, data released by the BSP showed.
Consolidated with that of their subsidiaries and quasi-banks, the equivalent CAR figure of U/KBs in the Philippines stood at 16.19 percent as of end-December 2014, lower than the 16.99 percent at end-September.
The latest figure is not comparable to the industry’s CAR level a year earlier since the September 2013 ratios were calculated under the Basel II Regime.
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 central bank explained that 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) and derecognizes the “net due to” account from regulatory capital,” it stated.
Despite the decline, the BSP said the latest CAR figures are well-above the central bank’s regulatory threshold of 10 percent and the international minimum of 8 percent.
“The industry’s capital structure remains primarily composed of high quality Common Equity Tier 1 (CET1),” the BSP said.
According to the BSP, the CET1 ratio of U/KBs represented 12.54 percent and 13.60 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 12.74 percent and 13.75 percent on solo and consolidated bases.
The BSP data added that big banks’ RWA also rose by 6.75 percent quarter-on-quarter at end-2014 due to a P357.21 billion increase in loans to the corporate sector.
The central bank said the latest CAR figures indicate that big banks operating in the Philippines maintain a sufficient buffer against their risk-taking activities when compared to regulatory standards.
“As part of its overall thrust to promote financial stability, the BSP continues to ensure that bank’s risk exposures are backed by high quality capital base,” it concluded.