The Capital Adequacy Ratios of Philippine Universal and Commercial Banks - March 31, 2013

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

It should be noted that under any of these guidelines, Bank of America N.A. is severely undercapitalized under BSP guidelines with a Total CAR and Tier 1 CAR of only 0.51 percent, respectively, as of March 31, 2013.

It should also be noted that Allied Banking Corporation has merged with Philippine National Bank as of the first quarter of 2013 and hence has not reported its Published Statement of Condition for that period.

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

Philippine Universal and Commercial Banking System
Capital Adequacy Ratios
Total CAR
March 31, 2013
Bank	Total CAR
Bank of America N.A.	0.51
United Coconut Planters Bank	11.19
HongKong & Shanghai Banking Corporation	13.67
Standard Chartered Bank	13.71
Metropolitan Bank & Trust Company	13.80
Bank of the Philippine Islands	13.81
Asia United Bank Corporation	14.44
Rizal Commercial Banking Corporation	15.01
China Banking Corporation	16.40
ANZ Banking Group Ltd	16.54
Security Bank Corporation	17.74
Banco De Oro Unibank	17.85
Philippine National Bank	17.90
East West Banking Corporation	18.48
Citibank N.A.	18.52
Union Bank of the Philippines	18.83
Maybank Philippines Inc.	19.28
Philippine Veterans Bank	19.53
Land Bank of the Philippines	19.65
Bank of Commerce	20.36
Philippine Bank of Communications	22.73
Development Bank of the Philippines	23.51
Mizuho Corporate Bank Ltd. - Manila Branch	25.52
Deutsche Bank AG	26.37
Korea Exchange Bank	26.95
Robinsons Bank Corporation	27.50
Chinatrust (Philippines) Commercial Banking Corporation	27.71
Philippine Trust Company	27.98
The Bank of Tokyo - Mitsubishi UFJ Ltd	29.21
Bank of China Limited - Manila Branch	32.87
Mega International Commercial Bank Company Limited	42.30
Internationale Nederlanden Groep BK	43.03
BDO Private Bank, Inc.	43.58
JP Morgan Chase National Bank Association	52.42
Bangkok Bank Public Co. Ltd	90.82
Al-Amanah Islamic Bank of the Philippines	203.02
Allied Banking Corporation*	NA

* Merged with Philippine National Bank



Source: www.bsp.gov.ph

Philippine Universal and Commercial Banking System
Capital Adequacy Ratios
Tier 1 CAR
March 31, 2013
Bank	Tier 1 CAR
Bank of America N.A.	0.51
United Coconut Planters Bank	11.19
Land Bank of the Philippines	12.65
Standard Chartered Bank	13.11
HongKong & Shanghai Banking Corporation	13.67
Metropolitan Bank & Trust Company	13.80
Bank of the Philippine Islands	13.81
Asia United Bank Corporation	14.44
Philippine National Bank	14.67
Banco De Oro Unibank	14.95
East West Banking Corporation	14.98
Rizal Commercial Banking Corporation	15.01
Maybank Philippines Inc.	15.39
China Banking Corporation	15.93
ANZ Banking Group Ltd	16.14
Security Bank Corporation	16.61
Development Bank of the Philippines	16.82
Philippine Bank of Communications	16.85
Union Bank of the Philippines	17.77
Citibank N.A.	17.81
Philippine Veterans Bank	19.41
Bank of Commerce	20.19
Mizuho Corporate Bank Ltd. - Manila Branch	24.58
Deutsche Bank AG	25.98
Korea Exchange Bank	26.54
Chinatrust (Philippines) Commercial Banking Corporation	26.99
Robinsons Bank Corporation	27.50
Philippine Trust Company	27.72
The Bank of Tokyo - Mitsubishi UFJ Ltd	28.25
Bank of China Limited - Manila Branch	32.15
Mega International Commercial Bank Company Limited	41.36
Internationale Nederlanden Groep BK	42.83
BDO Private Bank, Inc.	43.37
JP Morgan Chase National Bank Association	52.34
Bangkok Bank Public Co. Ltd	89.86
Al-Amanah Islamic Bank of the Philippines	431.54
Allied Banking Corporation*	NA

* Merged with Philippine National Bank

Source: www.bsp.gov.ph