PH banks’ capital buffer above minimum, says BSP

Major banks’ capital buffer remained at comfortable levels at the end of last year as companies raised record amounts of cash to meet tougher regulatory requirements.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that the average capital adequacy ratio (CAR) of universal and commercial banks remained well above industry minimums.

There was just a slight decline due to a change in how regulators recognized capital set aside by foreign banks.

The BSP said the banks’ buffer was made up mostly of higher-quality common equity tier 1 capital, reflecting the industry’s conservative behavior.

“Universal and commercial banks’ operating in the Philippines maintain sufficient buffer against their risk-taking activities when compared to regulatory standards,” the BSP said in a statement.

At the end of December 2014, major banks’ CAR stood at 16.19 percent. Excluding the books of subsidiaries, the industry’s CAR was at 15.29 percent. The CAR figures slid from 16.32 percent on solo and 16.99 percent on consolidated bases posted at the end of third quarter last year.

Both end-2014 CAR levels are above the minimum of 10 percent set by regulators.

CAR levels measure the amount of capital banks have relative to the size of their risky assets.

This shows the industry’s ability to absorb potential losses from loan defaults.

The decline reflected the new treatment of “bank capital” applicable to foreign bank branches (FBBs) as required under Republic Act 10641, or “An Act Allowing Full Entry of Foreign Banks in the Philippines.” This law became effective in the last quarter of 2014.

The new framework for FBBs provides that capital should mainly consist of money permanently assigned for Philippine operations. Money committed by foreign banks’ parent firms for the Philippines was no longer recognized under new rules.