Small PH banks seen as healthy as bigger peers in industry

MANILA, Philippines–Small, mostly family-owned banks, are just as healthy as their bigger counterparts, with capital buffers comfortably exceeding the regulatory minimum levels, a new report of the central bank is expected to show.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said a report on the capitalization levels of rural, cooperative, and stand-alone thrift banks would be released for the first time this month.

“The picture is, these banks as a group have a capital adequacy ratio (CAR) that is significantly higher than the minimum,” Tetangco told reporters.

CAR is a measure of a bank’s capital relative to its risk-weighted assets such as loans and holdings of risky investments. Under BSP rules, banks have to maintain a CAR of at least 10 percent.

Stricter rules on capital under Basel III regulations are used to measure the CAR of universal and commercial banks, as well as their subsidiary thrift banks.

Smaller banks such as rural and cooperative banks, and thrift banks that do not have the backing of larger lenders are subjected to more lenient rules that the BSP refers to as Basel 1.5.

“As a whole, the CARs are substantially higher than the minimum,” Tetangco said. “They’re even a little bit higher [than CARs of major banks],” he said.

Latest data from the central bank showed that universal and commercial banks had average CAR levels of 15.94 percent on solo basis and 16.66 percent if the books of subsidiaries are included at the end of second quarter this year.

The latest CAR figures of the industry are higher than the end-March 2014 ratios of 15.45 percent [solo basis] and 16.35 percent [consolidated basis].

The strengthening of the industry’s capital base remains driven by Common Equity Tier (CET) 1 which represents the highest quality of bank capital. CET1 ratios of major banks account for 13.74 percent of risk-weighted assets on solo basis and 14.48 percent on consolidated basis, respectively.

The banks’ Tier 1 ratios, which are composed of common equity and qualified capital instruments, stood at 13.96 percent and 14.65 percent on solo and consolidated bases.