The country’s banking system remains sound and fundamentally strong as local banks continued to maintain a high capital adequacy ratio (CAR), which translates to sustaining capital and operations the Bangko Sentral ng Pilipinas (BSP) said.
In a statement on Friday, the BSP said the average CAR of universal and commercial banks in the Philippines stood at 15.6 percent as of end-September last year, significantly higher than the 10 percent minimum CAR requirement imposed by the BSP.
CAR is a ratio measurement of a bank’s capital to its risk. For the Philippines, the central bank has set a 10 percent minimum CAR for banks. A ratio below this level indicates the bank is incurring excessive losses and is exposed to liquidity risks.
The BSP said the local banks’ high capitalization ratio was due to healthy capitalization of Common Equity Tier 1 – constituting 83 percent of the total capitalization of local banks — which are the highest quality among instruments eligible as bank capital.
The central bank said bank balance sheets continued to expand amid volatilities in the global financial system. It added that this growth was accomplished while maintaining asset quality, noting that non-performing loans only took up 1.6 percent of the country’s total loan portfolio last year.
For his part, BSP Governor Amando Tetangco Jr. said, “The BSP’s track record demonstrates the will to decisively act by meting sanctions on erring bank directors and officers, restricting imprudent activities, prohibiting unsafe or unsound practices, and even shutting down banks.”
He said the strength and soundness of the country’s banking system is key to the BSP and other government agencies’ goal to pursue financial stability as a collective objective.
“On our own and as a collective body with other financial regulators, we have also focused specifically on the potential build up of systemic risks. The issue we have been assessing covers quite a bit of ground, but they are inter-related by the common strand that they can create commingled risks that can be systemic in nature,” Tetangco said.
Tetangco pointed out that markets with financial stability can be targeted destinations for capital flows and investments. In line with this, the BSP stressed its continuing sense of urgency in maintaining a strong framework toward financial integrity necessary to sustain financial stability.