The Philippine banking system’s ability to protect depositors from risks remained stable as it continued to be at healthy levels despite the turbulence in the global financial markets, the Bangko Sentral ng Pilipinas (BSP) said last week.
As of end of December 2008, the capital adequacy ratio (CAR) of the banking system was at 14.74 percent on solo basis and 15.49 percent on consolidated basis. The figures are slightly higher than the comparable September 2008 ratios and exceeded the BSP’s minimum requirement of 10 percent of lenders’ assets.
The said ratio is used to measure banks’ capacity to absorb losses without stopping operations through Tier 1 (T1) capital and protect depositors in the event of liquidation through T2 capital.
With several banks issuing supplementary capital instruments in the form of unsecured subordinated debt, qualifying capital increased by PhP 23.8 billion on solo basis and PhP 19.8 billion for consolidated basis in the last quarter of 2008 alone. However, such increase in capital was however offset by the PhP 117.7-billion increase in risk-weighted assets (RWA).
The BASP said that this is notable since the incremental increase in RWAs would translate to a ratio of 20.2 percent on solo basis and 16.8 percent on consolidated basis, effectively ensuring that the banking system’s CAR remained robust in the face of the financial crisis at the end of 2008.
CAR is a ratio that regulators in the banking system use to watch bank's health, specifically bank's capital to its risk. Regulators in the banking system track a bank's CAR to ensure that it can absorb a reasonable amount of loss.
Regulators in most countries define and monitor CAR to protect depositors, thereby maintaining confidence in the banking system.
Technically, it determines the capacity of a bank in terms of meeting the time liabilities and other risk such as credit risk, market risk, operational risk, and others. It is a measure of how much capital is used to support the banks' risk assets.
As of end of December 2008, the capital adequacy ratio (CAR) of the banking system was at 14.74 percent on solo basis and 15.49 percent on consolidated basis. The figures are slightly higher than the comparable September 2008 ratios and exceeded the BSP’s minimum requirement of 10 percent of lenders’ assets.
The said ratio is used to measure banks’ capacity to absorb losses without stopping operations through Tier 1 (T1) capital and protect depositors in the event of liquidation through T2 capital.
With several banks issuing supplementary capital instruments in the form of unsecured subordinated debt, qualifying capital increased by PhP 23.8 billion on solo basis and PhP 19.8 billion for consolidated basis in the last quarter of 2008 alone. However, such increase in capital was however offset by the PhP 117.7-billion increase in risk-weighted assets (RWA).
The BASP said that this is notable since the incremental increase in RWAs would translate to a ratio of 20.2 percent on solo basis and 16.8 percent on consolidated basis, effectively ensuring that the banking system’s CAR remained robust in the face of the financial crisis at the end of 2008.
CAR is a ratio that regulators in the banking system use to watch bank's health, specifically bank's capital to its risk. Regulators in the banking system track a bank's CAR to ensure that it can absorb a reasonable amount of loss.
Regulators in most countries define and monitor CAR to protect depositors, thereby maintaining confidence in the banking system.
Technically, it determines the capacity of a bank in terms of meeting the time liabilities and other risk such as credit risk, market risk, operational risk, and others. It is a measure of how much capital is used to support the banks' risk assets.
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