Universal and Commercial Banks Sustain Robust Capitalization

Manila—(PHStocks)—Bangko Sentral ng Pilipinas (BSP)—Capital adequacy ratios (CARs) of universal and commercial banks (U/KBs) collectively stood at 17.98 percent on solo basis and 19.24 percent on consolidated basis as of end-June 2013. These high ratios are still driven by the industry’s Tier 1 capital, the highest quality among instruments eligible as bank capital. As a percentage of risk weighted assets (RWA), the Tier 1 ratios stood strongly at 16.46 percent and 16.75 percent on solo and consolidated basis, respectively.

The sustained strength of the industry’s CARs resulted from the faster growth pace of qualifying capital vis-à-vis that of RWA. On a quarter-on-quarter basis, qualifying capital grew by 1.18 percent on solo basis and 2.12 percent on a consolidated basis mainly due to profitable operations of banks in the second quarter of 2013 as well as the issuances of additional common stocks.

Despite the expansion in the industry’s total assets from PhP7,272.9 billion to PhP7,709.6 billion, the industry’s RWA decreased by 0.12 percent on solo basis mainly due to the reduction in the risk weight/capital charge of Philippine sovereign issues denominated in foreign currencies from 100 percent to 50 percent. This reduction in risk weight/capital charge is a direct result of the credit rating upgrade of the Philippines into investment grade. Likewise, RWA increased slightly by 0.22 percent on a consolidated basis. Without the change in risk weight/capital charge of Philippine sovereign issues denominated in foreign currencies, the industry’s RWA would have increased by 2.7 percent on solo basis.

The industry’s CAR figures indicate U/KBs’ continued efforts to maintain robust capitalization. A strong capital position promotes financial stability by providing individual banks and the industry with an adequate buffer against unexpected losses that may arise during times of stress.