Capitalization of major PH banks improves

The capital base of the country’s major banks improved at the end of June last year as lenders built up their buffers ahead of stricter rules that took effect at the start of 2014. FILE PHOTO

MANILA, Philippines—The capital base of the country’s major banks improved at the end of June last year as lenders built up their buffers ahead of stricter rules that took effect at the start of 2014.

The Bangko Sentral ng Pilipinas (BSP) on Thursday reported that the combined capital adequacy ratio of the country’s universal and commercial banks reached nearly double the minimum amount prescribed by regulators.

“These high ratios are still driven by the industry’s Tier 1 capital, the highest quality among instruments eligible as bank capital,” the BSP said in a statement.

At the end of June, the industry’s capital adequacy ratio (CAR) stood at 17.98 percent on a solo basis, which excludes their nonbank subsidiaries. On a consolidated basis, or with their subsidiaries, the sector’s CAR stood at 19.24 percent.

These ratios are better than the 17.75-percent CAR on a solo basis and 18.89 percent on a consolidated basis for banks recorded in March 2013.

A bank’s CAR serves as its buffer for potential losses from risky assets. Higher CAR levels are an indication of the health of the banking sector.

Up until the end of last year, universal and commercial banks, which corner about 90 percent of the country’s financial system, are required to maintain a CAR of at least 10 percent. Starting this month, banks were required to maintain higher CAR levels as part of reforms under international Basel III capitalization requirements.

The sustained strength of the industry’s CARs resulted from the faster pace of growth of qualifying capital compared with that of risk-weighted assets (RWA). As a percentage of RWA, the Tier 1 ratios stood strongly at 16.46 percent and 16.75 percent on solo and consolidated basis, respectively.

On a quarter-on-quarter basis, qualifying capital grew by 1.18 percent on solo basis and 2.12 percent on a consolidated basis mainly due to profitable operations of banks in the second quarter of 2013 as well as the issuances of additional common stocks.

Despite the expansion in the industry’s total assets to P7.27 trillion from P7.1 trillion, the industry’s RWA decreased by 0.12 percent on solo basis mainly due to the reduction in the risk weight of Philippine sovereign issues denominated in foreign currencies from 100 percent to 50 percent.

“This reduction in risk weight/capital charge is a direct result of the credit-rating upgrade of the Philippines into investment grade,” the BSP said. The world’s top three credit watchdogs rated the Philippine government’s debt paper as “investment grade” last year.

Without the change in risk weight of Philippine sovereign issues denominated in foreign currencies, the industry’s RWA would have increased by 2.70 percent on solo basis.