Banks remain well-capitalized – BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said yesterday the capital position of major banks operating in the Philippines remained strong despite a slight decrease in the first quarter of the year.

Data from the BSP showed the capital adequacy ratios (CAR) of universal and commercial banks declined to 15.07 percent on a solo basis in the first quarter of the year from 15.23 percent in the fourth quarter of last year.

On a consolidated basis, the CAR of major banks eased to 16.1 percent in the first quarter of the year from 16.19 percent in the fourth quarter last year.

The bank regulator said major banks booked higher capital adjustments due to more investments in non-core businesses.

“The decrease was due to a slight reduction in the U/KBs’ qualifying capital brought about by a rise in capital adjustments related to the banks’ investments in non-allied businesses. This increase in capital adjustments refers to specific exclusions that are no longer allowed. With this change, the capital position of banks can be better compared with the risk they take,” the BSP said.

Higher capital levels indicate banks could absorb more losses in case of failure of borrowers to pay their loans.

“The banks’ CAR figures indicate universal and commercial banks maintain sufficient buffer against unexpected losses that may arise during times of stress. A strong capital position promotes financial stability which is a key policy objective of the BSP,” the central bank said.

The BSP said the capital position of universal and commercial banks remains driven by common equity tier 1 (CET 1), which is the highest quality among instruments eligible as bank capital.

The CET 1 of major banks represented 12.39 percent and 13.52 percent of risk weighted assets (RWA) on solo and consolidated bases in March.

On the other hand, the banks’ Tier 1 ratios stood at 12.60 percent and 13.68 percent on solo and consolidated bases during the period.

Tier 1 is composed of common equity and qualified capital instruments.

The BSP no longer recognizes the debt-like Tier 2 instruments previously passed off as capital after the stricter Basel III rules on capital took effect last year.

Major banks in terms of total capital as of end March this year include BDO Unibank, Metropolitan Bank & Trust Co., Bank of Philippine Islands, Philippine National Bank, Land Bank of the Philippines, Rizal Commercial Banking Corp., China Banking Corp., Union Bank of the Philippines, Security Banking Corp., and Development Bank of the Philippines.