Banks remain well capitalized — BSP

MANILA, Philippines - Banks remain strong, the central bank Monday said, which should reassure depositors shaken by the recent spate of rural bank closures and the collapse of large banks abroad. In a statement, the Bangko Sentral ng Pilipinas (BSP) said the banking system’s capital adequacy ratio — a measure of financial strength — dipped to 14.32% on solo basis and to 15.25% on consolidated basis as of June, down from 14.49% on solo basis and 15.49% on consolidated basis as of March. "Solo basis" covers banks’ head offices and branches, while "consolidated basis" includes their subsidiaries. Despite the lower figures, the central bank said the industry ratio remains way above the BSP’s minimum requirement of 10% and the Bank for International Settlement’s (BIS) 8%. The capital adequacy ratio or CAR indicates how much capital a bank has in relation to its risk-weighted assets, such as money it has loaned out. The central bank sets a minimum level of CAR to ensure that a bank can absorb losses, so that depositors are protected. Philippine banks began abiding by the Basel 2 framework since July last year, which requires them to set aside more capital for riskier assets. The CAR of universal and commercial banks, thrift banks and rural and cooperative banks also remained above the BSP’s and the BIS’s required minimum as of June. Universal and commercial banks saw a 0.12-percentage point decline in their CAR to 14.34% in June from 14.46% a quarter ago, with the increase in risk-weighted assets to P3.09 billion from P2.94 billion offsetting the increase in capital to P442.9 billion. The central bank noted that these banks’ capital level grew by P17 billion in the second quarter due to the issuance of Tier 2 capital by two domestic banks. Including their subsidiaries, universal and banks’ CAR of 15.47% as of end-June was lower than the 15.66% in the previous quarter, also as a result of higher growth in risk-weighted assets. Thrift banks’ CAR likewise to 13.5% as of June from 15.16% as of March on both solo and consolidated basis. Rural and cooperative banks’ CAR likewise slid to 13.52% in the second quarter from 13.67% in the previous quarter. In both instances, the central bank explained the rise in risk-weighted assets was faster than the rise in capital. Cooperative banks, however, recorded a higher CAR of 15.07%. Rural banks’ CAR stood at 13.41%. — Gerard S. dela Peña, BusinessWorld