Manila Bulletin

Banks’ CAR remains healthy — Diokno

Capital Adequacy Ratio

- By LEE C. CHIPONGIAN

Market uncertaint­y and increase in bad loans will not affect banks’ ability to maintain a healthy level of capital, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.

“BSP estimates show that banks will continue to post CAR (Capital Adequacy Ratio) at above the 10 percent regulatory requiremen­t across plausible scenarios on write-off of loans and volatiliti­es in interest and forex (foreign exchange) rates,” he told members of the House Committee on Economic Affairs on Thursday.

The BSP is currently conducting what it called a comprehens­ive, baseline survey of all of its supervised financial institutio­ns to assess how the COVID-19 pandemic has affected its finances and operations including its asset quality, capital position, and profitabil­ity.

To assess and to determine the impact of the law, “Bayanihan to Heal As One Act” on the banking system, the BSP performed simulation­s to test for CAR. The emergency law mandated grace periods and prohibited lending institutio­ns from charging interests on interests, fees and charges such as late payment fees on all loan payments falling due within the community quarantine period.

Diokno said the simulation tested the banking system’s capability to withstand an assumed write-off of interest income on total loans and non- interest income from fees and commission up to three months.

Earlier this month, the BSP chief said no bank has closed down its operations because of COVID-19, however, banks have limited operations during the lockdown period.

The 46 big banks’ CAR as of end-December 2019, on a consolidat­ed basis remained unchanged at 16 percent and well-above the BSP’s regulatory threshold of 10 percent and internatio­nal standard of eight percent.

“We have a sound and stable banking sector,” Diokno reiterated in his presentati­on to Congress.

“The banking sector’s assets, the bulk of which are deposits, continue to expand, hitting a record high of ₱17.9 trillion as of May, 2020,” he said. He also noted that big banks’ non-performing loans ratio was at a “mere two percent” in the same period.

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