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 March 31, 2012.
Total CAR
Under BSP guidelines, two thrift banks (highlighted in yellow in the table below) do not meet the minimum Total CAR guideline of 10.0% as of March 31, 2012. These banks are as follows:
- Real Bank (A Thrift Bank) Inc. (Total CAR of 6.33%)
- Legazpi Savings Bank Inc. (Total CAR of 8.47%)
These two banks have been previously flagged in a previous post "Philippine Thrift Banks Continue to Improve in the First Quarter of 2012".
| Philippine Thrift Banking System | |
| Total CAR | |
| March 31, 2012 | |
| Bank | Total CAR |
| Real Bank (A Thrift Bank) Inc. | 6.33 |
| Legazpi Savings Bank Inc. | 8.47 |
| Equicom SB | 10.08 |
| Citibank Savings Inc. | 10.10 |
| Sterling Bank of Asia Inc. | 11.77 |
| Penbank, Inc. | 12.29 |
| University Savings Bank | 12.38 |
| Planters Development Bank | 14.41 |
| BPI Family Savings Bank | 14.93 |
| Philippine Resource Savings Banking Corporation | 15.73 |
| RCBC Savings Bank | 15.74 |
| Farmers Savings & Loan Bank | 15.81 |
| World Partners Bank (A Thrift Bank) | 16.21 |
| Luzon Development Bank | 17.51 |
| Philippine Savings Bank | 18.02 |
| Village SLA, Inc. | 18.49 |
| Hiyas Savings & Loan Bank | 18.82 |
| HSBC Savings Bank (Phils) Inc. | 18.83 |
| Opportunity Microfinance Bank | 19.06 |
| Philippine Postal Savings Bank | 19.36 |
| Producers Savings Bank | 20.34 |
| Premiere Development Bank | 20.37 |
| BPI Direct Savings Bank | 20.86 |
| BPI Globe Banko Inc. Savings Bank | 21.91 |
| Wealth Bank - A Development Bank | 21.94 |
| First Consolidated Bank | 22.24 |
| GSIS Family Bank | 24.13 |
| Allied Savings Bank | 24.59 |
| Philippine Business Bank | 25.01 |
| Dumaguete City Development Bank | 25.14 |
| Liberty Savings Bank | 26.10 |
| Bataan Development Bank | 26.59 |
| Malayan Bank Savings & Mortgage Bank | 27.50 |
| Business & Consumers Bank | 27.62 |
| Cordillera Savings Bank | 29.14 |
| Card SME Bank Inc. (A Thrift Bank) | 30.34 |
| UCPB Savings Bank | 30.86 |
| Life Savings Bank | 33.93 |
| China Bank Savings | 36.48 |
| Lemery Savings & Loan Bank, Inc. | 37.52 |
| Tong Yang Savings Bank Inc. | 39.33 |
| Malasiqui Progressive SLB, Inc. | 39.68 |
| Maritime SLA | 40.13 |
| The Queen City Development Bank | 45.35 |
| Pampanga Development Bank | 47.11 |
| Pridestar Development Bank | 55.86 |
| Sampaguita SLA | 55.97 |
| Pacific Ace Savings Bank | 58.20 |
| Tower Development Bank | 58.50 |
| Optimum Development Bank | 60.11 |
| Microfinance Maximum SB (Maxbank) | 60.63 |
| CityState Savings Bank | 64.67 |
| Quezon Coconut Producers SLB Inc. | 75.90 |
| Bank One Savings and Trust Corp. | 76.10 |
| United Overseas Bank Philippines | 78.75 |
| Dungganon Bank | 86.22 |
| Northpoint Development Bank | 101.76 |
| Progress SLA | 108.49 |
| Century Savings Bank | 121.25 |
| Merchants Savings & Loan Association Inc. | 268.00 |
| Iloilo City Development Bank | 294.36 |
| Isla Bank (A Thrift Bank) Inc. | 334.03 |
| Sun Savings Bank | 769.60 |
| BDO Elite Savings Bank | 1,542.48 |
| Bataan SLA | NA |
| City Savings Bank | NA |
| Metro Cebu Public Savings Bank | 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:
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 3.17%)
- Legazpi Savings Bank Inc. (Tier 1 CAR of 6.57%)
These two banks have been previously flagged in a previous post: "Philippine Thrift Banks Continue to Improve in the First Quarter of 2012".
| Philippine Thrift Banking System | |
| Tier 1 CAR | |
| March 31, 2012 | |
| Bank | Tier 1 CAR |
| Real Bank (A Thrift Bank) Inc. | 3.17 |
| Legazpi Savings Bank Inc. | 6.57 |
| Planters Development Bank | 8.09 |
| Citibank Savings Inc. | 9.28 |
| Sterling Bank of Asia Inc. | 9.71 |
| Premiere Development Bank | 10.84 |
| Philippine Resource Savings Banking Corporation | 13.81 |
| Philippine Savings Bank | 14.03 |
| BPI Family Savings Bank | 14.06 |
| Farmers Savings & Loan Bank | 14.78 |
| RCBC Savings Bank | 15.13 |
| World Partners Bank (A Thrift Bank) | 15.24 |
| Luzon Development Bank | 17.13 |
| Producers Savings Bank | 18.20 |
| HSBC Savings Bank (Phils) Inc. | 18.24 |
| Philippine Postal Savings Bank | 18.38 |
| Village SLA, Inc. | 18.49 |
| Hiyas Savings & Loan Bank | 18.52 |
| BPI Direct Savings Bank | 20.00 |
| BPI Globe Banko Inc. Savings Bank | 20.95 |
| Wealth Bank - A Development Bank | 20.99 |
| First Consolidated Bank | 22.24 |
| Allied Savings Bank | 24.01 |
| Philippine Business Bank | 24.06 |
| Dumaguete City Development Bank | 24.79 |
| Bataan Development Bank | 25.31 |
| China Bank Savings | 25.40 |
| GSIS Family Bank | 26.69 |
| Malayan Bank Savings & Mortgage Bank | 26.97 |
| Cordillera Savings Bank | 28.68 |
| UCPB Savings Bank | 30.17 |
| Metro Cebu Public Savings Bank | 32.49 |
| Lemery Savings & Loan Bank, Inc. | 37.15 |
| University Savings Bank | 37.76 |
| Tong Yang Savings Bank Inc. | 39.33 |
| Malasiqui Progressive SLB, Inc. | 39.50 |
| The Queen City Development Bank | 44.93 |
| Quezon Coconut Producers SLB Inc. | 57.27 |
| Sampaguita SLA | 57.47 |
| Pacific Ace Savings Bank | 58.13 |
| Microfinance Maximum SB (Maxbank) | 61.95 |
| Life Savings Bank | 62.90 |
| Iloilo City Development Bank | 63.67 |
| CityState Savings Bank | 64.05 |
| Pridestar Development Bank | 65.12 |
| Bank One Savings and Trust Corp. | 75.45 |
| United Overseas Bank Philippines | 78.33 |
| Opportunity Microfinance Bank | 81.97 |
| Dungganon Bank | 85.56 |
| Northpoint Development Bank | 101.76 |
| Pampanga Development Bank | 102.86 |
| Progress SLA | 108.49 |
| Tower Development Bank | 108.67 |
| Century Savings Bank | 119.85 |
| Card SME Bank Inc. (A Thrift Bank) | 138.74 |
| Merchants Savings & Loan Association Inc. | 267.92 |
| Isla Bank (A Thrift Bank) Inc. | 333.70 |
| Sun Savings Bank | 769.56 |
| BDO Elite Savings Bank | 1,542.48 |
| Bataan SLA | NA |
| Business & Consumers Bank | NA |
| City Savings Bank | NA |
| Equicom SB | NA |
| Liberty Savings Bank | NA |
| Maritime SLA | NA |
| Optimum Development Bank | NA |
| Penbank, Inc. | NA |
Source: www.bsp.gov.ph
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