PH banks’ capitalization remains healthy, exceeds BSP requirement

Universal and commercial banks in the country remain capable to absorb risks, with their capitalization in the first quarter staying well above the regulatory requirement.

This was according to the Bangko Sentral ng Pilipinas, which reported on Monday that the average capital adequacy ratio (CAR) of universal and commercial banks reached 16.85 percent as of the end of the first quarter compared with the minimum 10 percent imposed by the BSP.

The latest CAR was higher than the 16.66 percent registered in the fourth quarter of last year and the 16.42 percent in the first quarter of 2011.

If the capitalization of the subsidiaries of the banks is taken into account, the average “consolidated CAR” stood at 18.01 percent in the first quarter, higher than the 17.72 percent in the fourth quarter of last year and the 17.42 percent as of the end of the first quarter of 2011.

CAR, one of the key indicators of the financial health of banks, is the proportion of capital to the value of assets that are measured using risk weights.

“The risk-based CARs of universal and commercial banks and their subsidiary banks and quasi-banks continued to grow and remained well above the minimum ratio,” the BSP said in a statement.

“The expansion in the industry’s capital base was mainly driven by the banks’ net profit and some additional issuances of capital instruments,” the BSP also said.

The higher-than-required CAR means banks will not have problems complying with the additional capital requirements that will be imposed in 2014 under the Basel 3.

Consistent with the Basel 3, which is an updated internationally accepted standards on bank regulation, the BSP will impose an additional 2.5 percent capital requirement on banks on top of the 10 percent CAR.

With their sufficient capitalization, the BSP said the banks were expected to remain healthy and to continue servicing the funding needs of businesses and consumers in the country, despite the prolonged crisis in the euro zone.

Regulators said banks were expected to extend more loans, which should aid in efforts to sustain a robust economic growth.

The BSP said the favorable performance of the Philippine economy so far this year could be partly attributed to the higher lending by banks.

The economy grew by 7.1 percent in the third quarter from a year ago, the fastest growth rate in Southeast Asia in the period.