The country’s major banks remain well capitalized and prepared for unexpected hits that may come from economic problems overseas, the Bangko Sentral ng Pilipinas (BSP) reported on Monday.
The banking industry’s chief regulator said the universal and commercial banks’ (U/KB) average capital adequacy ratio (CAR) stood at 17.28 percent at the end of last year. This was well above the minimum of 10 percent prescribed by the BSP and the global standard of 8 percent.
A bank’s CAR—a proportion of capital that is set aside relative to a bank’s risk assets—is a measure of its ability to absorb unexpected losses that may be a result of macroeconomic issues or a sudden rise in loan defaults.
“The industry’s CAR figures indicated that banks continue to be mindful of the importance of setting aside sufficient capital,” the BSP said in a statement.
“A robust CAR position supports financial stability because it provides individual banks and the industry with an adequate buffer against risks and unexpected losses,” it added.
When consolidated with subsidiaries and quasi-banks, universal and commercial banks registered a CAR of 18.35 percent at the end of December last year.
The industry’s CAR level at the end of December was lower than the 17.95-percent average in the previous quarter. The BSP said this was due to the rise in lending to corporations and investments in foreign currency debt papers issued by the government. This led to a rise in risk-weight assets to 4.97 percent on a solo basis, and 4.93 percent if assets of subsidiaries are counted.
The rise in risky assets, however, was partly countered by an increase in qualifying capital of 1.02 percent and 1.32 percent on a solo and consolidated basis, respectively. The increase was driven by healthy profits reported by local banks for the year 2012, the BSP said.