The Capital Adequacy Ratios of Philippine Universal and Commercial Banks - December 31, 2012

A bank's Capital Adequacy Ratio is a measure of a bank's capital and financial strength.  It is expressed as a percentage of a bank's risk weighted credit exposures.  It is also known as the "Capital to Risk Weighted Assets Ratio (CRAR).

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

The BSP issued new BASEL III Implementing Guidelines that will take effect on January 1, 2014. Under the new guidelines:

"Banks must now meet specific minimum thresholds for so-called Common Equity Tier 1 (CET1) capital and Tier 1 (T1) capital in addition to the Capital Adequacy Ratio (CAR). These regulatory thresholds effectively move banks worldwide to rely more on core capital instruments like CET1 and T1 issues. This is in lieu of hybrid instruments which did not fare well in the latest global crisis as far as absorbing losses. The ability to absorb losses is central to Basel III.

The BSP maintained the minimum Capital Adequacy Ratio (CAR) at 10.0 percent. In addition to CAR, the new framework sets a CET1 ratio of at least 6.0 percent and the Tier I capital ratio is at a minimum of 7.5 percent. 

The new guidelines also introduce a capital conservation buffer of 2.5 percent which shall be made up of CET1 capital. In addition, banks which issued capital instruments from 2011 will be allowed to count these instruments as Basel III-eligible until end-2015

The Total CAR and Tier 1 CAR of Philippine Universal and Commercial Banks as of December 31, 2012 is as follows:

Philippine Commercial Banking System
Total CAR
December 31, 2012
Bank	Total CAR
United Coconut Planters Bank	10.71
Maybank Philippines Inc.	12.54
Bank of the Philippine Islands	12.58
Metropolitan Bank & Trust Company	12.99
HongKong & Shanghai Banking Corporation	13.05
Standard Chartered Bank	14.00
Asia United Bank Corporation	14.80
Security Bank Corporation	14.99
Allied Banking Corporation	15.75
China Banking Corporation	15.85
Rizal Commercial Banking Corporation	15.99
Philippine National Bank	16.62
ANZ Banking Group Ltd	16.75
Banco De Oro Unibank	17.10
East West Banking Corporation	18.12
Land Bank of the Philippines	20.24
Philippine Veterans Bank	20.41
Philippine Bank of Communications	20.45
Union Bank of the Philippines	20.68
Philippine Trust Company	21.41
Citibank N.A.	21.79
Deutsche Bank AG	21.80
Bank of Commerce	22.32
Development Bank of the Philippines	24.05
Robinsons Bank Corporation	25.73
Korea Exchange Bank	27.58
Mizuho Corporate Bank Ltd. - Manila Branch	28.94
Chinatrust (Philippines) Commercial Banking Corporation	30.72
Bank of China Limited - Manila Branch	31.45
The Bank of Tokyo - Mitsubishi UFJ Ltd	32.12
BDO Private Bank, Inc.	32.82
Internationale Nederlanden Groep BK	35.79
JP Morgan Chase National Bank Association	44.01
Mega International Commercial Bank Company Limited	44.25
Bank of America N.A.	55.36
Bangkok Bank Public Co. Ltd	146.38
Al-Amanah Islamic Bank of the Philippines	203.89

Source: www.bsp.gov.ph

Philippine Commercial Banking System
Tier 1 CAR
December 31, 2012
Bank	Tier 1 CAR
United Coconut Planters Bank	10.71
Philippine National Bank	11.39
Maybank Philippines Inc.	11.45
Bank of the Philippine Islands	12.58
Metropolitan Bank & Trust Company	12.99
HongKong & Shanghai Banking Corporation	13.05
Land Bank of the Philippines	13.40
Standard Chartered Bank	13.46
Allied Banking Corporation	13.56
Rizal Commercial Banking Corporation	13.62
Banco De Oro Unibank	14.10
Security Bank Corporation	14.15
Philippine Bank of Communications	14.48
East West Banking Corporation	14.77
Asia United Bank Corporation	14.80
China Banking Corporation	15.32
ANZ Banking Group Ltd	16.28
Development Bank of the Philippines	17.41
Union Bank of the Philippines	18.01
Philippine Veterans Bank	20.22
Citibank N.A.	21.07
Philippine Trust Company	21.19
Deutsche Bank AG	21.42
Bank of Commerce	22.14
Robinsons Bank Corporation	26.31
Korea Exchange Bank	27.58
Mizuho Corporate Bank Ltd. - Manila Branch	28.91
Chinatrust (Philippines) Commercial Banking Corporation	29.98
Bank of China Limited - Manila Branch	30.84
The Bank of Tokyo - Mitsubishi UFJ Ltd	31.17
BDO Private Bank, Inc.	32.66
Internationale Nederlanden Groep BK	35.53
Mega International Commercial Bank Company Limited	43.31
JP Morgan Chase National Bank Association	43.89
Bank of America N.A.	55.19
Bangkok Bank Public Co. Ltd	145.46
Al-Amanah Islamic Bank of the Philippines	460.31

Source: www.bsp.gov.ph