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
Under these guidelines, several Philippine Thrift Banks currently do not meet these guidelines as of June 30, 2013. The banks that fail to meet BSP's minimum capital requirements are as follows:
Total CAR
- Bataan Savings and Loan Bank (Total CAR of 0.00)
- Equicom Savings Bank, Inc. (Total CAR of 9.83)
Tier One CAR
- Bataan Savings and Loan Bank (Tier One CAR of 0.00)
- Business & Consumers Bank (Tier One CAR of 0.00)
- Equicom Savings Bank, Inc. (Tier One CAR of 0.00)
- Maritime Savings Bank Corporation (Tier One CAR of 0.00)
- Optimum Development Bank (Tier One CAR of 0.00)
- Planters Development Bank (Tier One CAR of 5.07)
- Legazpi Savings Bank, Inc. (Tier One CAR of 8.09)
The Total CAR and Tier 1 CAR of Philippine Universal and Commercial Banks as of June 30, 2013 is as follows:(Banks that do not meet BSP's minimum capital requirements are highlighted in yellow):
| Philippine Banking System | ||
| Total CAR | ||
| June 30, 2013 | ||
| Bank | Total CAR | |
| Bataan Savings and Loan Bank | Thrift | 0.00% |
| Equicom Savings Bank Inc. | Thrift | 9.83% |
| Silangan Savings & Loan Bank Inc. | Thrift | 10.10% |
| Planters Development Bank | Thrift | 10.15% |
| The Real Bank Inc. | Thrift | 10.92% |
| Opportunity Kauswagan Bank Inc. | Thrift | 11.07% |
| United Coconut Planters Bank | U/KB | 11.50% |
| BPI Globe Banko Inc. | Thrift | 12.03% |
| Standard Chartered Bank | U/KB | 13.03% |
| Bank of the Philippine Islands | U/KB | 13.35% |
| Citibank Savings Inc. | Thrift | 13.36% |
| Philippine Postal Savings Bank Inc. | Thrift | 13.61% |
| City Savings Bank Inc. | Thrift | 13.70% |
| Metropolitan Bank & Trust Company | U/KB | 13.83% |
| The HongKong & Shanhai Banking Corporation | U/KB | 14.30% |
| University Savings Bank Inc. | Thrift | 14.67% |
| World Partners Bank | Thrift | 14.85% |
| Farmers Savings & Loan Bank Inc. | Thrift | 15.41% |
| China Bank Savings Inc. | Thrift | 15.42% |
| BPI Family Savings Bank Inc. | Thrift | 15.59% |
| Wealth Development Bank Corporation | Thrift | 15.67% |
| Luzon Development Bank | Thrift | 16.03% |
| Legazpi Savings Bank, Inc. | Thrift | 16.18% |
| BDO Unibank, Inc. | U/KB | 16.21% |
| Rizal Commecial Banking Corporation | U/KB | 16.22% |
| Sterling Bank of Asia | Thrift | 16.27% |
| RCBC Savings Bank Inc. | Thrift | 16.31% |
| Security Bank Savings Corporation | Thrift | 16.54% |
| ANZ Banking Group Ltd. | U/KB | 16.76% |
| Security Bank Corporation | U/KB | 16.89% |
| Philippine Resources Savings Banking | Thrift | 17.03% |
| BPI Direct Savings Bank Inc. | Thrift | 17.09% |
| Philippine National Bank | U/KB | 17.30% |
| East West Banking Corporation | U/KB | 17.56% |
| Village Bank Inc. | Thrift | 17.77% |
| China Banking Corporation | U/KB | 17.87% |
| Hiyas Banking Corporation | Thrift | 18.17% |
| Philippine Savings Bank | Thrift | 18.76% |
| Philippine Veterans Bank | U/KB | 18.76% |
| Producers Savings Bank Corporation | Thrift | 19.30% |
| Penbank Inc. | Thrift | 20.01% |
| Union Bank of the Philippines | U/KB | 20.18% |
| Maybank Philippines, Inc. | U/KB | 20.57% |
| Citibank, N.A. | U/KB | 21.21% |
| Bataan Development Bank | Thrift | 21.23% |
| Comsavings Bank | Thrift | 21.23% |
| HSBC Savings Bank (Phils) Inc. | Thrift | 21.28% |
| Dumaguete City Development Bank Inc. | Thrift | 21.41% |
| Land Bank of the Philippines | U/KB | 21.87% |
| Philippine Bank of Communications | U/KB | 22.32% |
| First Consolidate Bank Inc. | Thrift | 23.20% |
| Deutsche Bank AG | U/KB | 23.34% |
| Bank of Commerce | U/KB | 23.66% |
| Development Bank of the Philippines | U/KB | 23.68% |
| Malayan Bank Savings and Mortgage Bank, Inc. | Thrift | 24.13% |
| Asia United Bank Corporation | U/KB | 24.25% |
| Mizuho Corporate Bank, Ltd. - Manila Branch | U/KB | 25.12% |
| Philippine Business Bank Inc. | Thrift | 25.43% |
| Northpoint Development Bank Inc. | Thrift | 25.88% |
| Allied Savings Bank | Thrift | 25.97% |
| UCPB Savings Bank | Thrift | 26.45% |
| Robinsons Bank Corporation | U/KB | 26.48% |
| Card SME Bank Inc. | Thrift | 27.24% |
| The Bank of Tokyo - Mitsubishi UFJ Ltd. | U/KB | 27.59% |
| Business and Consumers Bank | Thrift | 28.42% |
| Cordillera Savings Bank Inc. | Thrift | 28.87% |
| Korea Exchange Bank | U/KB | 29.68% |
| Chinatrust (Phils.) Commercial Bank Corporation | U/KB | 30.01% |
| Life Savings Bank Inc. | Thrift | 30.20% |
| Metro Cebu Public Savings Bank | Thrift | 31.94% |
| Lemery Savings & Loan Bank, Inc. | Thrift | 32.64% |
| Maritime Savings Bank Corporation | Thrift | 33.55% |
| Philippine Trust Company | U/KB | 36.93% |
| Citystate Savings Bank Inc. | Thrift | 37.45% |
| Bank of China Limited - Manila Branch | U/KB | 38.20% |
| Microfinance Maximum SB Inc. | Thrift | 38.38% |
| Pampanga Development Bank | Thrift | 38.51% |
| Tong Yang Savings Bank Inc. | Thrift | 39.26% |
| Mega International Commercial Bank Co., Ltd | U/KB | 39.50% |
| BDO Private Bank, Inc. | U/KB | 41.85% |
| Malasiqui Progressive SLB, Inc. | Thrift | 43.85% |
| JP Morgan Chase Bank, N.A. | U/KB | 44.86% |
| Pacific Ace Savings Bank Inc. | Thrift | 51.80% |
| Queen City Development Bank Inc. | Thrift | 52.19% |
| Pride Star Development Bank Inc. | Thrift | 52.20% |
| Sampaguita Savings Bank Inc. | Thrift | 52.98% |
| Internationale Nederlanden Groep Bank | U/KB | 53.26% |
| Bank of America, N.A. | U/KB | 54.44% |
| Tower Development Bank | Thrift | 59.44% |
| Bank One Savings and Trust Corp. | Thrift | 59.45% |
| Progressive Savings and Loan Bank Inc. | Thrift | 61.24% |
| Optimum Development Bank Inc. | Thrift | 61.88% |
| Dungganon Bank | Thrift | 61.93% |
| Sun Savings Bank Inc. | Thrift | 62.87% |
| Quezon Coconut Bank Inc. | Thrift | 65.88% |
| Bangkok Bank Public Co. Ltd. | U/KB | 84.29% |
| Merchants Savings & Loan Association Inc. | Thrift | 86.20% |
| Century Savings Bank Corporation | Thrift | 88.17% |
| United Overseas Bank Philippines | Thrift | 134.13% |
| Al-Amanah Islamic Investment Bank of the Philippines | U/KB | 153.89% |
| Isla Bank Inc. | Thrift | 320.22% |
| Iloilo City Development Bank | Thrift | 470.02% |
| BDO Elite Savings Bank Inc. | Thrift | 522.27% |
| Philippine Banking System | ||
| Tier 1 CAR | ||
| June 30, 2013 | ||
| Bank | Tier 1 CAR | |
| Bataan Savings and Loan Bank | Thrift | 0.00% |
| Business and Consumers Bank | Thrift | 0.00% |
| Equicom Savings Bank Inc. | Thrift | 0.00% |
| Maritime Savings Bank Corporation | Thrift | 0.00% |
| Optimum Development Bank Inc. | Thrift | 0.00% |
| Planters Development Bank | Thrift | 5.07% |
| Legazpi Savings Bank, Inc. | Thrift | 8.09% |
| The Real Bank Inc. | Thrift | 10.02% |
| Silangan Savings & Loan Bank Inc. | Thrift | 10.10% |
| BPI Globe Banko Inc. | Thrift | 11.26% |
| United Coconut Planters Bank | U/KB | 11.50% |
| Sterling Bank of Asia | Thrift | 12.08% |
| China Bank Savings Inc. | Thrift | 12.11% |
| Standard Chartered Bank | U/KB | 12.46% |
| Philippine Postal Savings Bank Inc. | Thrift | 12.66% |
| Citibank Savings Inc. | Thrift | 12.71% |
| City Savings Bank Inc. | Thrift | 12.85% |
| Bank of the Philippine Islands | U/KB | 13.35% |
| Metropolitan Bank & Trust Company | U/KB | 13.83% |
| The HongKong & Shanhai Banking Corporation | U/KB | 14.30% |
| East West Banking Corporation | U/KB | 14.38% |
| World Partners Bank | Thrift | 14.43% |
| BDO Unibank, Inc. | U/KB | 14.46% |
| Land Bank of the Philippines | U/KB | 14.55% |
| Farmers Savings & Loan Bank Inc. | Thrift | 14.66% |
| Wealth Development Bank Corporation | Thrift | 14.66% |
| BPI Family Savings Bank Inc. | Thrift | 14.71% |
| Luzon Development Bank | Thrift | 14.91% |
| Philippine Resources Savings Banking | Thrift | 15.30% |
| Philippine Savings Bank | Thrift | 15.46% |
| Security Bank Savings Corporation | Thrift | 15.61% |
| RCBC Savings Bank Inc. | Thrift | 15.69% |
| Security Bank Corporation | U/KB | 15.80% |
| Philippine National Bank | U/KB | 15.86% |
| Rizal Commecial Banking Corporation | U/KB | 16.22% |
| BPI Direct Savings Bank Inc. | Thrift | 16.23% |
| ANZ Banking Group Ltd. | U/KB | 16.27% |
| Philippine Bank of Communications | U/KB | 16.71% |
| Development Bank of the Philippines | U/KB | 17.07% |
| Village Bank Inc. | Thrift | 17.23% |
| China Banking Corporation | U/KB | 17.36% |
| Hiyas Banking Corporation | Thrift | 17.89% |
| Philippine Veterans Bank | U/KB | 18.58% |
| Union Bank of the Philippines | U/KB | 18.96% |
| Producers Savings Bank Corporation | Thrift | 19.03% |
| Penbank Inc. | Thrift | 19.25% |
| Maybank Philippines, Inc. | U/KB | 19.46% |
| Citibank, N.A. | U/KB | 20.49% |
| HSBC Savings Bank (Phils) Inc. | Thrift | 20.51% |
| Bataan Development Bank | Thrift | 20.86% |
| Dumaguete City Development Bank Inc. | Thrift | 21.02% |
| Comsavings Bank | Thrift | 22.14% |
| First Consolidate Bank Inc. | Thrift | 22.30% |
| Deutsche Bank AG | U/KB | 23.02% |
| Bank of Commerce | U/KB | 23.50% |
| Malayan Bank Savings and Mortgage Bank, Inc. | Thrift | 23.67% |
| Mizuho Corporate Bank, Ltd. - Manila Branch | U/KB | 24.18% |
| Asia United Bank Corporation | U/KB | 24.19% |
| Philippine Business Bank Inc. | Thrift | 24.87% |
| Allied Savings Bank | Thrift | 25.14% |
| UCPB Savings Bank | Thrift | 25.72% |
| Northpoint Development Bank Inc. | Thrift | 25.88% |
| Robinsons Bank Corporation | U/KB | 26.48% |
| The Bank of Tokyo - Mitsubishi UFJ Ltd. | U/KB | 26.62% |
| Korea Exchange Bank | U/KB | 28.28% |
| Cordillera Savings Bank Inc. | Thrift | 28.46% |
| Chinatrust (Phils.) Commercial Bank Corporation | U/KB | 29.26% |
| Metro Cebu Public Savings Bank | Thrift | 31.13% |
| Lemery Savings & Loan Bank, Inc. | Thrift | 36.02% |
| Philippine Trust Company | U/KB | 36.56% |
| Citystate Savings Bank Inc. | Thrift | 36.80% |
| Bank of China Limited - Manila Branch | U/KB | 37.39% |
| Mega International Commercial Bank Co., Ltd | U/KB | 38.55% |
| Tong Yang Savings Bank Inc. | Thrift | 39.26% |
| BDO Private Bank, Inc. | U/KB | 41.71% |
| Malasiqui Progressive SLB, Inc. | Thrift | 43.66% |
| JP Morgan Chase Bank, N.A. | U/KB | 44.76% |
| Opportunity Kauswagan Bank Inc. | Thrift | 45.35% |
| Sampaguita Savings Bank Inc. | Thrift | 49.63% |
| University Savings Bank Inc. | Thrift | 50.22% |
| Queen City Development Bank Inc. | Thrift | 51.59% |
| Pacific Ace Savings Bank Inc. | Thrift | 51.68% |
| Internationale Nederlanden Groep Bank | U/KB | 53.03% |
| Bank of America, N.A. | U/KB | 54.23% |
| Microfinance Maximum SB Inc. | Thrift | 56.31% |
| Quezon Coconut Bank Inc. | Thrift | 58.13% |
| Bank One Savings and Trust Corp. | Thrift | 58.97% |
| Dungganon Bank | Thrift | 61.23% |
| Progressive Savings and Loan Bank Inc. | Thrift | 61.24% |
| Sun Savings Bank Inc. | Thrift | 61.92% |
| Life Savings Bank Inc. | Thrift | 62.90% |
| Pride Star Development Bank Inc. | Thrift | 68.12% |
| Bangkok Bank Public Co. Ltd. | U/KB | 83.32% |
| Merchants Savings & Loan Association Inc. | Thrift | 86.37% |
| Century Savings Bank Corporation | Thrift | 86.71% |
| Iloilo City Development Bank | Thrift | 103.92% |
| Pampanga Development Bank | Thrift | 112.49% |
| Tower Development Bank | Thrift | 112.90% |
| United Overseas Bank Philippines | Thrift | 133.98% |
| Card SME Bank Inc. | Thrift | 225.36% |
| Isla Bank Inc. | Thrift | 319.85% |
| Al-Amanah Islamic Investment Bank of the Philippines | U/KB | 417.80% |
| BDO Elite Savings Bank Inc. | Thrift | 522.27% |
Source: www.bsp.gov.ph
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