The banking industry’s capital base expanded to nearly double the regulatory requirement as of June, pointing to a strong local financial system that could be tapped to support economic growth.
The Bangko Sentral ng Pilipinas (BSP) reported that the balance sheets of both banks and non-bank financial firms showed the industry remained stable and capable of withstanding various shocks.
The capital adequacy ratio (CAR) of local banks and their subsidiaries rose to 19.3 percent as of June, the BSP said. This was nearly twice the minimum 10 percent required by regulators.
This was better than the 18.9 percent in March and 18.4 percent at the end of last December.
A bank’s CAR represents its ability to withstand potential liquidity issues that may endanger clients’ deposits under its care. The BSP said high-quality tier 1 capital, made up mostly of common equity, reached 16.8 percent.
“Banks remained adequately capitalized against risks,” the BSP said in its Philippine Financial System report released this week.
The continued improvement in the local banking industry’s balance sheets comes ahead of stricter rules on capital requirements, under the new Basel III regime, that will take effect in the country this coming January.
Banks are also seen preparing for the Association of Southeast Asian Nations (Asean) integration in 2015, when local banks will be forced to compete with bigger institutions in the region.
Last week, the BSP reported that the entire banking industry’s profits grew by 59.6 percent year-on-year to P61.9 billion in the first six months of 2013. The industry’s average return on equity also improved to 15.46 percent from 12.71 percent.
In its report, the BSP said resources of domestic banks, which represent 80 percent of all the money in the financial system, grew by 16.2 percent to P8.6 trillion in June. This rise was supported by a 12.3-percent expansion in loans, which was financed by an 18.3-percent increase in deposits during the period.