Banks improve capital adequacy ratio
MANILA, Philippines–Banks’ buffers from possible losses improved at the end of September last year, reflecting the industry’s efforts to shore up capital amid stricter regulations.
Latest data released by the Bangko Sentral ng Pilipinas (BSP) likewise showed foreign banks infusing more cash into their local branches amid more stringent rules aimed at preserving the sector’s stability.
“Capital adequacy figures indicate that universal and commercial banks maintain sufficient buffer against unexpected losses that may arise during times of stress,” the BSP said in a statement.
At the end of September, major banks that make up 90 percent of the industry had a capital adequacy ratio (CAR) of 16.32 percent. Consolidated with bank subsidiaries, the industry’s consolidated CAR stood at 16.99 percent. These were improvements from 15.94 and 16.66 percent, respectively, at the end of June.
A bank’s CAR is a measure of the capital it has relative to risky assets. Higher capital levels show banks can absorb more losses in case of defaults by clients.
Just counting common equity, banks’ CAR stood at 13.73 percent on a solo basis and 14.49 percent on a consolidated one. This was much higher than the industry minimum of 8.5 percent.
The third-quarter 2014 increase in the CAR of universal and commercial banks 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.
As a result, banks were able to raise qualifying capital by 5.67 percent, or about P50 billion quarter-on-quarter. This outpaced the growth in risk-weighted assets of 3.23 percent.
Last year’s capital raising binge came as stricter Basel III rules on capital took effect. Under the new regime, old debt-like Tier 2 instruments, which banks were allowed to pass off as capital, were no longer recognized. This forced banks to replace these securities with new IOUs that have more loss-absorbing features to better protect shareholders and clients.
Minimum levels of Tier 1 common equity capitalization were also raised, in line with international norms.
