PH banks’ combined capital breaches P1T

MANILA, Philippines–Local banks raised a massive amount of cash during the second quarter of the year to support their expansion plans amid stricter regulations on capital buffers against potential losses.

Data released by the Bangko Sentral ng Pilipinas (BSP) showed that banks were hard at work to hike capital levels, outpacing the rapid growth of their asset bases fueled by strong demand for loans.

For the first time in history, banks’ consolidated capital breached the trillion-peso mark to total at P1.03 trillion in June from P969.03 billion at the end of March—a quarter-on-quarter increase of 6.4 percent.

In the same period, risk-weighted assets, which are mainly loans to consumers and businesses, rose by just 4.38 percent.

At the end of June, the capital adequacy ratio (CAR) of major banks reached 15.94 percent on a solo basis.

Including the books of subsidiaries, the industry’s CAR reached 16.66 percent.

This was better than the 15.45 percent solo CAR and 16.35 percent consolidated CAR at the end of March.

The increase comes following the implementation at the start of the year of stricter rules on capital under international Basel 3 standards.

CAR measures the amount of a bank’s capital relative to risk-weighted assets.

A bank’s capital serves as its main buffer against potential losses in case its assets turn toxic.

Capital is made up of two components: tier 1 securities, which are a bank’s common equity, and tier 2 securities, which are more of debt.

Under Basel 3, rules that took effect at the start of the year, tier 2 securities under old regulations could no longer form part of a bank’s capital, forcing banks to replace these IOUs.

Basel 3-compliant tier 2 notes have “loss-absorption” features, which means holders of these notes would be treated more like shareholders than creditors.

According to Fitch, banks issued about P50 billion in Basel 3-compliant tier 2 instruments as of July in response to the new rules.

The issuance of these new types of instruments compares with the over P120 billion in tier 2 notes that were issued under old rules.

These notes, Fitch said, “must be replaced eventually.”