Banking system's capital above BSP, int'l standards

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said the local banking industry managed to keep its capital levels significantly above international standards as of the end of the first half of last year amid the sovereign debt crisis in Europe and growth uncertainties in advanced economies led by the US.

BSP Governor Amando Tetangco Jr. said in a statement that the system-wide average capital adequacy ratios (CARs) stood at 16.34 percent on a solo basis and 17.25 percent on a consolidated basis as of end-June last year.

“The CARs of the Philippine banking system remained within a tight range of 16 percent to 17 percent despite global difficulties,” Tetangco stressed. The CAR is a ratio of a bank’s capital to its risk and the central bank tracks this indicator to ensure that banks have the capability to absorb a reasonable amount of loss.

He added that the Tier 1 capital ratios remained high at 13.9 percent on a solo basis and 13.93 percent on a consolidated basis.

The BSP chief pointed out that the banking system’s CAR remained well above the central bank’s 10-percent minimum requirement and the international benchmark ratio of eight percent under the Basel Accord.

Data showed that the CAR of the banking system as of end-June was slightly lower than the end-March level of 16.48 percent on a solo basis and 17.39 percent on a consolidated basis.

“The ratio actually declined from the previous quarter but this was due to increases in risk weighted assets outpacing the growth in banks capital,” Tetangco explained.

Tetangco said the CARs of universal and commercial banks stood at 16.31 percent in end-June from 16.42 percent in end-March on a solo basis and 17.32 percent from 17.42 percent on a consolidated basis.

On solo basis, the expansion in the industry’s capital base was mainly driven by the banks’ net profits for the second quarter of 2011 of P23.6 billion and the P15 billion additional issuances of unsecured subordinated debt qualifying as LT2 capital (with eligible LT2 capital of P10.7 billion).

The increases in capital, however, were partially offset by cash dividends paid by four universal banks amounting to P10.6 billion.

On the other hand, the increase in risk weighted assets was generally driven by expansion of loan exposures to unrated corporations, banks, individuals for consumption and housing purposes, and additional investment in securities issued by various unrated counterparties.