The general formula is as follows:
CAR = (Tier 1 Capital + Tier 2 Capital)/Risk Weighted Assets
Tier 1 Capital
Tier 1 CAR is the ratio of a bank's core or equity capital to its total risk-weighted assets. It measures financial strength from a regulator's point of view. Tier 1 Capital measures the bank's ability to absorb losses without a bank being required to cease trading.
The formula for Tier 1 Capital is as follows:
Tier 1 Capital = (Paid-up Capital + Statutory Reserves + Disclosed Free Reserves) - (Equity Investments in Subsidiary + Intangible Assets + Current & B/F losses)
Tier 1 CAR = Tier 1 Capital/Risk Weighted Assets
Tier 2 Capital
Tier 2 Capital is supplementary capital. It measures the ability of a bank to absorb losses in the event of a winding up and so it provides a lesser degree of protection to depositors.
The formula for Tier 2 Capital is as follows:
Tier 2 Capital = Undisclosed Reserves + General Loss Reserves + Hybrid Debt Capital Instruments and Subordinated Debts.
Risk Weighted Assets
Risk Weighted Assets are a bank's on balance sheet assets and off-balance sheet exposures, weighted according to risk. Different classes of assets have different risk weightings. For instance, cash on hand or a government bond has zero risk weighting and are subtracted from the total risk assets. A loan would have a 100% risk weighthing - it would be counted towards the total risk assets of the bank.
More information about this can be found here.
Minimum Capital Requirements
International Guidelines
Basel III is the global requlatory standard on bank capital adequacy, stress testing, and market liquidity risk agreed upon by the members of the Basel Committee on Banking Supervision.
Under Basel III, the minimum Common Equity Tier 1 Capital Ratio is 4.5%, Tier 1 Capital Ratio is 6.0%, conservation buffer is 2.5%, and the minimum Total CAR is 8.0%.
For more information on Basel III, read this.
BSP Guidelines
BSP Guidelines are somewhat stricter than Basel III. Under the new BSP Guidelines conforming to Basel III, the minimum Common Equity Tier 1 Capital Ratio is 6.0%, Tier 1 Capital Ratio is 7.5%, conservation buffer is still 2.5%, and the minimum Total CAR is 10.0%. See "BSP Issues Basel 3 Memorandum on Banks' Capital Base Standards" for more information.
Under these guidelines, most Philippine Thrift Banks currently meet these guidelines as of December 31, 2011.
Total CAR
Under BSP guidelines, three thrift banks (highlighted in yellow in the table below) do not meet the minimum Total CAR guideline of 10.0% as of December 31, 2011. These banks are as follows:
- Real Bank (A Thrift Bank) Inc. (Total CAR of 4.56%)
- Equicom SB (Total CAR of 8.97%)
- Legazpi Savings Bank Inc. (Total CAR of 9.97%)
These three banks have been previously flagged in a previous post "City Savings Bank Takes the Silver in Insolvency".
| Philippine Thrift Banking System | |
| Total CAR | |
| December 31, 2011 | |
| Bank | Total CAR |
| Real Bank (A Thrift Bank) Inc. | 4.56 |
| Equicom SB | 8.97 |
| Legazpi Savings Bank Inc. | 9.97 |
| Citibank Savings Inc. | 11.03 |
| University Savings Bank | 11.26 |
| Sterling Bank of Asia Inc. | 13.07 |
| Philippine Savings Bank | 13.93 |
| BPI Family Savings Bank | 14.68 |
| RCBC Savings Bank | 14.95 |
| Planters Development Bank | 14.98 |
| Penbank, Inc. | 16.46 |
| Farmers Savings & Loan Bank | 16.48 |
| City Savings Bank | 16.93 |
| Premiere Development Bank | 16.93 |
| Producers Savings Bank | 17.28 |
| Luzon Development Bank | 17.40 |
| Hiyas Savings & Loan Bank | 18.50 |
| HSBC Savings Bank (Phils) Inc. | 18.84 |
| Wealth Bank - A Development Bank | 20.11 |
| BPI Direct Savings Bank | 21.08 |
| First Consolidated Bank | 22.79 |
| Village SLA, Inc. | 23.07 |
| Philippine Postal Savings Bank | 23.34 |
| World Partners Bank (A Thrift Bank) | 23.85 |
| Philippine Business Bank | 24.23 |
| Allied Savings Bank | 24.57 |
| BPI Globe Banko Inc. Savings Bank | 24.73 |
| Opportunity Microfinance Bank | 27.23 |
| Bataan Development Bank | 27.31 |
| GSIS Family Bank | 27.59 |
| Dumaguete City Development Bank | 27.60 |
| Liberty Savings Bank | 28.12 |
| Cordillera Savings Bank | 29.62 |
| Metro Cebu Public Savings Bank | 30.41 |
| Malayan Bank Savings & Mortgage Bank | 30.84 |
| UCPB Savings Bank | 31.33 |
| China Bank Savings | 31.61 |
| Business & Consumers Bank | 32.56 |
| Life Savings Bank | 34.52 |
| Card SME Bank Inc. (A Thrift Bank) | 36.62 |
| Maritime SLA | 40.78 |
| Malasiqui Progressive SLB, Inc. | 40.91 |
| Lemery Savings & Loan Bank, Inc. | 41.57 |
| Tong Yang Savings Bank Inc. | 45.28 |
| The Queen City Development Bank | 48.34 |
| Pridestar Development Bank | 53.39 |
| Pampanga Development Bank | 53.99 |
| Sampaguita SLA | 54.91 |
| Pacific Ace Savings Bank | 59.40 |
| Microfinance Maximum SB (Maxbank) | 61.51 |
| CityState Savings Bank | 66.10 |
| Tower Development Bank | 69.99 |
| Optimum Development Bank | 72.10 |
| Northpoint Development Bank | 92.00 |
| Dungganon Bank | 93.03 |
| Quezon Coconut Producers SLB Inc. | 93.52 |
| Progress SLA | 112.18 |
| Century Savings Bank | 129.39 |
| United Overseas Bank Philippines | 191.43 |
| Merchants Savings & Loan Association Inc. | 298.60 |
| Iloilo City Development Bank | 316.04 |
| Isla Bank (A Thrift Bank) Inc. | 409.35 |
| Sun Savings Bank | 870.56 |
| BDO Elite Savings Bank | 1,531.99 |
| Bank One Savings and Trust Corp. | NA |
| Bataan SLA | NA |
Source: www.bsp.gov.ph
Tier 1 CAR
Under BSP guidelines, two thrift banks (highlighted in yellow in the table below) do not meet the minimum Tier 1 CAR guideline of 7.5% as of December 31, 2011. These banks are as follows:
- Real Bank (A Thrift Bank) Inc. (Tier 1 CAR of 3.04%)
- Legazpi Savings Bank Inc. (Tier 1 CAR of 6.89%)
These two banks have been previously flagged in a previous post "City Savings Bank Takes the Silver in Insolvency".
| Philippine Thrift Banking System | |
| Tier 1 CAR | |
| December 31, 2011 | |
| Bank | Tier 1 CAR |
| Real Bank (A Thrift Bank) Inc. | 3.04 |
| Legazpi Savings Bank Inc. | 6.89 |
| Planters Development Bank | 8.37 |
| Equicom SB | 8.51 |
| Citibank Savings Inc. | 10.12 |
| Sterling Bank of Asia Inc. | 11.42 |
| BPI Family Savings Bank | 13.85 |
| HSBC Savings Bank (Phils) Inc. | 13.90 |
| Philippine Savings Bank | 13.93 |
| RCBC Savings Bank | 14.34 |
| Producers Savings Bank | 15.39 |
| City Savings Bank | 16.01 |
| Premiere Development Bank | 16.13 |
| Farmers Savings & Loan Bank | 16.44 |
| Luzon Development Bank | 17.27 |
| Hiyas Savings & Loan Bank | 18.20 |
| Wealth Bank - A Development Bank | 19.25 |
| China Bank Savings | 19.35 |
| BPI Direct Savings Bank | 20.18 |
| Philippine Postal Savings Bank | 22.40 |
| First Consolidated Bank | 22.79 |
| World Partners Bank (A Thrift Bank) | 22.85 |
| Village SLA, Inc. | 23.07 |
| Philippine Business Bank | 23.27 |
| BPI Globe Banko Inc. Savings Bank | 23.77 |
| Allied Savings Bank | 23.99 |
| Bataan Development Bank | 26.03 |
| GSIS Family Bank | 26.87 |
| Dumaguete City Development Bank | 27.22 |
| Cordillera Savings Bank | 29.02 |
| Malayan Bank Savings & Mortgage Bank | 30.23 |
| UCPB Savings Bank | 30.57 |
| University Savings Bank | 33.40 |
| Malasiqui Progressive SLB, Inc. | 40.72 |
| Lemery Savings & Loan Bank, Inc. | 41.17 |
| Tong Yang Savings Bank Inc. | 45.28 |
| The Queen City Development Bank | 48.05 |
| Microfinance Maximum SB (Maxbank) | 53.88 |
| Quezon Coconut Producers SLB Inc. | 56.48 |
| Sampaguita SLA | 56.49 |
| Pacific Ace Savings Bank | 59.32 |
| Life Savings Bank | 62.45 |
| Pridestar Development Bank | 64.90 |
| CityState Savings Bank | 65.42 |
| Northpoint Development Bank | 92.00 |
| Iloilo City Development Bank | 92.17 |
| Dungganon Bank | 92.32 |
| Opportunity Microfinance Bank | 93.89 |
| Pampanga Development Bank | 107.18 |
| Tower Development Bank | 107.38 |
| Progress SLA | 112.18 |
| Century Savings Bank | 128.52 |
| Card SME Bank Inc. (A Thrift Bank) | 135.00 |
| United Overseas Bank Philippines | 190.58 |
| Merchants Savings & Loan Association Inc. | 298.53 |
| Isla Bank (A Thrift Bank) Inc. | 408.95 |
| Sun Savings Bank | 870.50 |
| BDO Elite Savings Bank | 1,531.99 |
| Penbank, Inc. | 214,574,760.54 |
| Bank One Savings and Trust Corp. | NA |
| Bataan SLA | NA |
| Business & Consumers Bank | NA |
| Liberty Savings Bank | NA |
| Maritime SLA | NA |
| Metro Cebu Public Savings Bank | NA |
| Optimum Development Bank | NA |
Source: www.bsp.gov.ph
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