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, all of the Philippine Universal and Commercial Banks currently meet these guidelines as of June 30, 2012.
| Philippine Commercial Banking System | |
| Total CAR | |
| June 30, 2012 | |
| Bank | Total CAR |
| United Coconut Planters Bank | 10.66 |
| The Bank of Tokyo - Mitsubishi UFJ Ltd | 12.26 |
| Bank of the Philippine Islands | 13.01 |
| Maybank Philippines Inc. | 13.13 |
| HongKong & Shanghai Banking Corporation | 13.47 |
| Banco De Oro Unibank | 13.52 |
| Allied Banking Corporation | 13.80 |
| Asia United Bank Corporation | 14.82 |
| Standard Chartered Bank | 15.18 |
| Metropolitan Bank & Trust Company | 15.40 |
| China Banking Corporation | 15.56 |
| Rizal Commercial Banking Corporation | 15.69 |
| ANZ Banking Group Ltd | 15.71 |
| Philippine Veterans Bank | 16.57 |
| Security Bank Corporation | 17.05 |
| Union Bank of the Philippines | 18.56 |
| Philippine Trust Company | 19.85 |
| East West Banking Corporation | 19.91 |
| Citibank N.A. | 20.17 |
| Land Bank of the Philippines | 20.81 |
| Philippine National Bank | 20.93 |
| Bank of Commerce | 21.39 |
| Development Bank of the Philippines | 21.60 |
| Deutsche Bank AG | 24.15 |
| Robinsons Bank Corporation | 28.11 |
| Philippine Bank of Communications | 28.57 |
| Mizuho Corporate Bank Ltd. - Manila Branch | 28.94 |
| Chinatrust (Philippines) Commercial Banking Corporation | 29.73 |
| BDO Private Bank, Inc. | 30.77 |
| Korea Exchange Bank | 36.74 |
| Bank of China Limited - Manila Branch | 42.81 |
| Mega International Commercial Bank Company Limited | 43.14 |
| Bank of America N.A. | 43.57 |
| Internationale Nederlanden Groep BK | 46.91 |
| JP Morgan Chase National Bank Association | 47.90 |
| Bangkok Bank Public Co. Ltd | 72.61 |
| Al-Amanah Islamic Bank of the Philippines | 160.89 |
Source: www.bsp.gov.ph
| Philippine Commercial Banking System | |
| Tier 1 CAR | |
| June 30, 2012 | |
| Bank | Tier 1 CAR |
| Banco De Oro Unibank | 9.12 |
| United Coconut Planters Bank | 10.66 |
| The Bank of Tokyo - Mitsubishi UFJ Ltd | 11.47 |
| Allied Banking Corporation | 11.66 |
| Maybank Philippines Inc. | 11.98 |
| Bank of the Philippine Islands | 13.01 |
| Rizal Commercial Banking Corporation | 13.11 |
| Land Bank of the Philippines | 13.69 |
| HongKong & Shanghai Banking Corporation | 13.82 |
| Development Bank of the Philippines | 13.97 |
| Philippine Bank of Communications | 14.28 |
| Philippine National Bank | 14.41 |
| Standard Chartered Bank | 14.65 |
| Asia United Bank Corporation | 14.77 |
| China Banking Corporation | 14.98 |
| Metropolitan Bank & Trust Company | 15.07 |
| ANZ Banking Group Ltd | 15.33 |
| East West Banking Corporation | 15.64 |
| Union Bank of the Philippines | 15.86 |
| Security Bank Corporation | 15.98 |
| Philippine Veterans Bank | 16.38 |
| Citibank N.A. | 19.42 |
| Philippine Trust Company | 19.63 |
| Bank of Commerce | 21.39 |
| Deutsche Bank AG | 23.91 |
| Mizuho Corporate Bank Ltd. - Manila Branch | 28.00 |
| Robinsons Bank Corporation | 28.71 |
| Chinatrust (Philippines) Commercial Banking Corporation | 29.07 |
| BDO Private Bank, Inc. | 30.60 |
| Korea Exchange Bank | 36.74 |
| Bank of China Limited - Manila Branch | 42.12 |
| Mega International Commercial Bank Company Limited | 42.24 |
| Bank of America N.A. | 43.48 |
| Internationale Nederlanden Groep BK | 46.74 |
| JP Morgan Chase National Bank Association | 47.83 |
| Bangkok Bank Public Co. Ltd | 71.66 |
| Al-Amanah Islamic Bank of the Philippines | 473.00 |
Source: www.bsp.gov.ph
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