Banks’ solvency improves

THE capital of the country’s banks improved nine months after the Lehman Brothers collapse, according to the Bangko Sentral ng Pilipinas (BSP).

In a statement, the BSP said the banking system’s capital adequacy ratio (CAR) reached 14.81 percent on solo basis, and 15.68 percent on consolidated basis at end-June this year. These were higher than the 14.56 percent and 15.30 percent registered in March.

“The CAR of the banking system continued to post a wide margin over the BSP’s minimum capital ratio of 10 percent and the Basel Accord’s standard ratio of 8 percent,” the central bank said.

Capital adequacy ratio is a risk-sensitive measure of a bank’s solvency. It relates capital to assets weighted according to their relative riskiness.

Universal, commercial and thrift banks adopted stricter capital standards under Basel 2 in July last year, requiring the assignment of higher risk weights to certain assets and allocation of capital charge for operational risk.

Both the qualifying capital position and risk-weighted assets of the banking industry posted moderate growth quarter-on-quarter in June.

The improvement in the banking system’s CAR was mainly driven by the increase in the capital adequacy ratio of universal and commercial lenders.

The country’s biggest lenders registered an average CAR of 14.98 percent on solo basis, higher than 14.65 percent in March.  On a consolidated basis, their capital adequacy ratio reached 15.88 percent, also higher than 15.48 percent in March.

For the thrift banking industry, the CAR, however, went down to 11.47 percent from 12.15 percent at end-March on both solo and consolidated bases.

Thrift banks have been boosting their consumer lending business by offering lower rates for auto and housing loans since the early part of the year as consumption weakened amid an economic slowdown.

For the rural banking industry, the capital adequacy ratio increased to 18.41 percent from 18.21 percent in March.

Recently, the BSP and the Philippine Deposit Insurance Corp. put up a P5-billion fund under the Strengthening Program for Rural Banks to encourage mergers, consolidations and acquisitions in the industry.

Qualified strategic third-party investors could avail of financial assistance when acquiring or merging with eligible rural banks, particularly those that are capital deficient.

The Rural Bankers Association of the Philippines earlier told The Manila Times that consolidation in the industry is underway with around six to eight lenders poised to merge. –Maricel E. Burgonio Senior Reporter, Manila Times