Banks’ CAR down in ’2012 Q4

The capital adequacy ratio (CAR) of big banks declined in the fourth quarter of last year from the previous quarter as lenders take in more risks, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

On average, universal and commercial banks recorded a CAR of 17.28 percent on solo basis and 18.35 percent on consolidated basis in the fourth quarter of last year, official data showed.

The figures were down from end-September’s 17.35 percent and 19.01 percent, respectively. From same period last year though, they remain up versus 16.66 percent and 17.72 percent.

The latest figures also continued to exceed the BSP’s minimum 10-percent requirement and the international standard of eight percent.

CAR – a measure of financial strength – gauges the capacity of banks to absorb risks by comparing their qualifying capital and their risk-weighted assets (RWAs) such as loans granted and securities issued.

Two measurements are used: solo basis takes into account the bank itself, while consolidated basis considers their subsidiaries.

The lower quarter-on-quarter result was “due to RWAs increasing at a faster pace than qualifying capital,” the central bank said in a statement.

Nevertheless, the latest reading continues to show that banks are “mindful of the importance of setting aside sufficient capital” to cover for potential losses, it added.

The BSP attributed the rise in RWA to more loans granted by banks to corporations as well as their placements in government securities.

Compared to the third quarter, big lenders’ RWA rose 4.97 percent on solo and 4.93 percent on consolidated basis.

These, the agency said, outpaced the increase in banks’ buffer funds recorded at 1.32 percent using both metrics during the same period.

At the same time, the build-up in capital was tempered by banks’ redemption of Tier 2 debt securities as “preparation” for the Basel III implementation next year.