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 September 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%)
- Enterprise Bank Inc. (Total CAR of 0.00%)
- The Palawan Bank (Total CAR of 7.74%)
- The Real Bank (Total CAR of 8.15%)
- Planters Development Bank (Total CAR of 8.50%)
- Equicom Savings Bank Inc. (Total CAR of 9.94%)
Tier One CAR
- Bataan Savings and Loan Bank (Tier One CAR of 0.00%)
- Business & Consumers Bank (Tier One CAR of 0.00%)
- Enterprise Bank Inc. (Tier One CAR of 0.00%)
- Equicom Savings Bank, Inc. (Tier One CAR of 0.00%)
- Inter-Asia Development Bank (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 4.25%)
- The Palawan Bank (Tier One CAR of 5.64%)
- The Real Bank (Tier One CAR of 7.28%)
- China Bank Savings Inc. (Tier One CAR of 9.37%)
In addition to this list, Silangan Savings and Loan Bank, Inc., which had a Total CAR of 10.18 and Tier One CAR of 10.18 as of September 30, 2013 (or just above the BSP minimums for these CAR ratios) failed as of January 9, 2014. For more details, check out a previous blog post "A Short Analysis of Recent Bank Failures since the Failure of Banco Filipino". This bank was also highlighted as one of the "The Top Distressed Philippine Banks as of June 30, 2013".
The Total CAR and Tier 1 CAR of Philippine Banks as of September 30, 2013 is as follows:(Banks that do not meet BSP's minimum capital requirements are highlighted in yellow, Banks that failed are highlighted in red):
| Philippine Banking System | ||
| TOTAL CAR | ||
| September 30, 2013 | ||
| Bank | Type of Bank | Total CAR (%) |
| BATAAN SAVINGS AND LOAN BANK | Thrift | 0.00 |
| ENTERPRISE BANK INC (A THRIFT BANK) | Thrift | 0.00 |
| THE PALAWAN BANK (PALAWAN DB) INC | Thrift | 7.74 |
| THE REAL BANK (A THRIFT BANK) INC | Thrift | 8.15 |
| PLANTERS DEVELOPMENT BANK | Thrift | 8.50 |
| EQUICOM SAVINGS BANK INC | Thrift | 9.94 |
| SILANGAN SAVINGS & LOAN BANK INC | Thrift | 10.18 |
| STANDARD CHARTERED BANK | U/KB | 10.97 |
| UNITED COCONUT PLANTERS BANK | U/KB | 11.86 |
| OPPORTUNITY KAUSWAGAN BANK INC (A MICROFINANCE THRIFT BANK) | Thrift | 11.91 |
| CITY SAVINGS BANK INC | Thrift | 12.12 |
| CHINA BANK SAVINGS INC | Thrift | 12.36 |
| BPI GLOBE BANKO INC A SAVINGS BANK | Thrift | 12.54 |
| METROPOLITAN BANK & TRUST CO | U/KB | 13.19 |
| WEALTH DEVELOPMENT BANK CORPORATION | Thrift | 13.39 |
| PHILIPPINE POSTAL SAVINGS BANK INC | Thrift | 13.43 |
| HONGKONG & SHANGHAI BANKING CORP | U/KB | 13.47 |
| UNIVERSITY SAVINGS BANK INC | Thrift | 14.24 |
| SECURITY BANK SAVINGS CORPORATION | Thrift | 14.62 |
| STERLING BANK OF ASIA INC (A SAVINGS BANK) | Thrift | 14.64 |
| BANK OF THE PHILIPPINE ISLANDS | U/KB | 14.82 |
| CITIBANK SAVINGS INC | Thrift | 15.10 |
| LUZON DEVELOPMENT BANK | Thrift | 15.22 |
| BPI FAMILY SAVINGS BANK INC | Thrift | 15.27 |
| BDO UNIBANK INC | U/KB | 15.29 |
| WORLD PARTNERS BANK (A THRIFT BANK) | Thrift | 16.30 |
| RIZAL COMMERCIAL BANKING CORPORATION | U/KB | 16.65 |
| PHILIPPINE RESOURCES SAVINGS BANKING | Thrift | 16.69 |
| CHINA BANKING CORPORATION | U/KB | 16.74 |
| ANZ BANKING GROUP LTD | U/KB | 16.84 |
| RCBC SAVINGS BANK INC | Thrift | 17.06 |
| FARMERS SAVINGS & LOAN BANK INC | Thrift | 17.22 |
| PHILIPPINE NATIONAL BANK | U/KB | 17.25 |
| EAST WEST BANKING CORPORATION | U/KB | 17.27 |
| COMSAVINGS BANK | Thrift | 17.35 |
| ILOILO CITY DEVELOPMENT BANK | Thrift | 17.43 |
| HIYAS BANKING CORPORATION | Thrift | 17.50 |
| VILLAGE BANK INC (A THRIFT BANK) | Thrift | 17.59 |
| PHILIPPINE BANK OF COMMUNICATIONS | U/KB | 17.80 |
| BPI DIRECT SAVINGS BANK INC | Thrift | 18.28 |
| SECURITY BANK CORPORATION | U/KB | 18.38 |
| PHILIPPINE SAVINGS BANK | Thrift | 18.43 |
| PHILIPPINE VETERANS BANK | U/KB | 18.76 |
| BATAAN DEVELOPMENT BANK | Thrift | 19.12 |
| ASIA UNITED BANK CORPORATION | U/KB | 19.18 |
| PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC) | Thrift | 19.53 |
| UNION BANK OF THE PHILIPPINES | U/KB | 19.66 |
| CITIBANK, N.A. | U/KB | 20.72 |
| DEVELOPMENT BANK OF THE PHILIPPINES | U/KB | 20.94 |
| NORTHPOINT DEV'T BANK INC | Thrift | 21.08 |
| MAYBANK PHILIPPINES INC | U/KB | 21.29 |
| LAND BANK OF THE PHILIPPINES | U/KB | 21.46 |
| PRODUCERS SAVINGS BANK CORPORATION | Thrift | 21.60 |
| MALAYAN BANK SAVINGS AND MORT BANK INC | Thrift | 21.89 |
| HSBC SAVINGS BANK(PHILS) INC | Thrift | 21.91 |
| BANK OF COMMERCE | U/KB | 22.05 |
| MIZUHO BANK LTD - MANILA BRANCH | U/KB | 23.44 |
| FIRST CONSOLIDATED BANK INC (A PDB) | Thrift | 23.86 |
| THE BANK OF TOKYO-MITSUBISHI UFJ LTD | U/KB | 23.86 |
| CARD SME BANK INC A THRIFT BANK | Thrift | 24.19 |
| BANK OF CHINA LIMITED-MANILA BRANCH | U/KB | 24.97 |
| ROBINSONS BANK CORPORATION | U/KB | 25.18 |
| DEUTSCHE BANK AG | U/KB | 25.44 |
| ALLIED SAVINGS BANK | Thrift | 25.72 |
| UCPB SAVINGS BANK | Thrift | 25.72 |
| PHILIPPINE BUSINESS BANK INC A SAVINGS | Thrift | 25.89 |
| CHINATRUST BANKING CORPORATION | U/KB | 27.76 |
| KOREA EXCHANGE BANK | U/KB | 28.09 |
| DUMAGUETE CITY DEVELOPMENT BANK INC | Thrift | 28.56 |
| METRO CEBU PUBLIC SAVINGS BANK | Thrift | 29.60 |
| BUSINESS AND CONSUMERS BANK (A DB) | Thrift | 29.74 |
| LIFE SAVINGS BANK INC | Thrift | 30.10 |
| INTER-ASIA DEVELOPMENT BANK | Thrift | 33.10 |
| LEMERY SAVINGS & LOAN BANK, INC. | Thrift | 33.10 |
| CORDILLERA SAVINGS BANK INC | Thrift | 33.14 |
| MARITIME SAVINGS BANK CORPORATION | Thrift | 34.26 |
| PHILIPPINE TRUST COMPANY | U/KB | 34.41 |
| CITYSTATE SAVINGS BANK INC | Thrift | 34.55 |
| PAMPANGA DEVELOPMENT BANK | Thrift | 34.66 |
| MICROFINANCE MAXIMUM SB INC | Thrift | 36.45 |
| MEGA INTERNATIONAL COMMERCIAL BANK CO LTD | U/KB | 37.25 |
| INTERNATIONALE NEDERLANDEN GROEP BK | U/KB | 40.44 |
| BDO PRIVATE BANK, INC. | U/KB | 41.21 |
| TONG YANG SAVINGS BANK INC | Thrift | 42.78 |
| MALASIQUI PROGRESSIVE SLB, INC | Thrift | 45.13 |
| QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK | Thrift | 51.90 |
| PACIFIC ACE SAVINGS BANK INC | Thrift | 52.32 |
| PRIDE STAR DEVELOPMENT BANK INC | Thrift | 52.78 |
| SAMPAGUITA SAVINGS BANK INC | Thrift | 52.98 |
| TOWER DEVELOPMENT BANK | Thrift | 54.16 |
| SUN SAVINGS BANK INC | Thrift | 56.23 |
| JP MORGAN CHASE BANK NATIONAL ASSOCIATION. | U/KB | 57.21 |
| PROGRESS SAVINGS AND LOAN BANK INC | Thrift | 59.47 |
| BANK OF AMERICA N.A. | U/KB | 60.41 |
| OPTIMUM DEVELOPMENT BANK INC | Thrift | 61.47 |
| DUNGGANON BANK (A MICROFINANCE THRIFT | Thrift | 62.82 |
| QUEZON COCONUT BANK INC (A THRIFT BANK) | Thrift | 66.44 |
| BANK ONE SAVINGS AND TRUST CORPORATION | Thrift | 71.12 |
| MERCHANTS SAVINGS & LOAN ASSN INC | Thrift | 82.52 |
| CENTURY SAVINGS BANK CORPORATION | Thrift | 90.75 |
| BANGKOK BANK PUBLIC CO LTD | U/KB | 106.81 |
| UNITED OVERSEAS BANK PHILIPPINES | Thrift | 106.93 |
| AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS | U/KB | 149.69 |
| ISLA BANK(A THRIFT BANK) INC | Thrift | 234.85 |
| BDO ELITE SAVINGS BANK INC | Thrift | 517.44 |
| Philippine Banking System | ||
| Tier One CAR | ||
| September 30, 2013 | ||
| Bank | Type of Bank | Tier One CAR |
| BATAAN SAVINGS AND LOAN BANK | Thrift | 0.00 |
| BUSINESS AND CONSUMERS BANK (A DB) | Thrift | 0.00 |
| ENTERPRISE BANK INC (A THRIFT BANK) | Thrift | 0.00 |
| EQUICOM SAVINGS BANK INC | Thrift | 0.00 |
| INTER-ASIA DEVELOPMENT BANK | Thrift | 0.00 |
| MARITIME SAVINGS BANK CORPORATION | Thrift | 0.00 |
| OPTIMUM DEVELOPMENT BANK INC | Thrift | 0.00 |
| PLANTERS DEVELOPMENT BANK | Thrift | 4.25 |
| THE PALAWAN BANK (PALAWAN DB) INC | Thrift | 5.64 |
| THE REAL BANK (A THRIFT BANK) INC | Thrift | 7.28 |
| CHINA BANK SAVINGS INC | Thrift | 9.37 |
| SILANGAN SAVINGS & LOAN BANK INC | Thrift | 10.18 |
| STANDARD CHARTERED BANK | U/KB | 10.44 |
| STERLING BANK OF ASIA INC (A SAVINGS BANK) | Thrift | 10.45 |
| CITY SAVINGS BANK INC | Thrift | 11.25 |
| UNITED COCONUT PLANTERS BANK | U/KB | 11.86 |
| BPI GLOBE BANKO INC A SAVINGS BANK | Thrift | 12.13 |
| PHILIPPINE POSTAL SAVINGS BANK INC | Thrift | 12.51 |
| WEALTH DEVELOPMENT BANK CORPORATION | Thrift | 12.53 |
| PHILIPPINE BANK OF COMMUNICATIONS | U/KB | 13.01 |
| METROPOLITAN BANK & TRUST CO | U/KB | 13.19 |
| HONGKONG & SHANGHAI BANKING CORP | U/KB | 13.47 |
| SECURITY BANK SAVINGS CORPORATION | Thrift | 13.70 |
| LUZON DEVELOPMENT BANK | Thrift | 14.11 |
| BPI FAMILY SAVINGS BANK INC | Thrift | 14.39 |
| EAST WEST BANKING CORPORATION | U/KB | 14.41 |
| CITIBANK SAVINGS INC | Thrift | 14.43 |
| BDO UNIBANK INC | U/KB | 14.53 |
| LAND BANK OF THE PHILIPPINES | U/KB | 14.61 |
| BANK OF THE PHILIPPINE ISLANDS | U/KB | 14.82 |
| PHILIPPINE RESOURCES SAVINGS BANKING | Thrift | 15.01 |
| PHILIPPINE SAVINGS BANK | Thrift | 15.24 |
| PHILIPPINE NATIONAL BANK | U/KB | 15.81 |
| WORLD PARTNERS BANK (A THRIFT BANK) | Thrift | 15.84 |
| CHINA BANKING CORPORATION | U/KB | 16.16 |
| ANZ BANKING GROUP LTD | U/KB | 16.38 |
| RCBC SAVINGS BANK INC | Thrift | 16.41 |
| FARMERS SAVINGS & LOAN BANK INC | Thrift | 16.46 |
| RIZAL COMMERCIAL BANKING CORPORATION | U/KB | 16.65 |
| VILLAGE BANK INC (A THRIFT BANK) | Thrift | 17.20 |
| HIYAS BANKING CORPORATION | Thrift | 17.22 |
| SECURITY BANK CORPORATION | U/KB | 17.26 |
| BPI DIRECT SAVINGS BANK INC | Thrift | 17.42 |
| DEVELOPMENT BANK OF THE PHILIPPINES | U/KB | 17.60 |
| COMSAVINGS BANK | Thrift | 17.96 |
| UNION BANK OF THE PHILIPPINES | U/KB | 18.56 |
| PHILIPPINE VETERANS BANK | U/KB | 18.57 |
| PENBANK INC (A PDB) (FORMERLY: PENINSULA RB INC) | Thrift | 18.81 |
| BATAAN DEVELOPMENT BANK | Thrift | 18.82 |
| ASIA UNITED BANK CORPORATION | U/KB | 19.08 |
| CITIBANK, N.A. | U/KB | 20.01 |
| MAYBANK PHILIPPINES INC | U/KB | 20.15 |
| NORTHPOINT DEV'T BANK INC | Thrift | 21.08 |
| HSBC SAVINGS BANK(PHILS) INC | Thrift | 21.13 |
| PRODUCERS SAVINGS BANK CORPORATION | Thrift | 21.27 |
| MALAYAN BANK SAVINGS AND MORT BANK INC | Thrift | 21.42 |
| BANK OF COMMERCE | U/KB | 21.95 |
| MIZUHO BANK LTD - MANILA BRANCH | U/KB | 22.50 |
| FIRST CONSOLIDATED BANK INC (A PDB) | Thrift | 22.96 |
| THE BANK OF TOKYO-MITSUBISHI UFJ LTD | U/KB | 23.09 |
| BANK OF CHINA LIMITED-MANILA BRANCH | U/KB | 24.41 |
| ALLIED SAVINGS BANK | Thrift | 24.88 |
| UCPB SAVINGS BANK | Thrift | 24.98 |
| DEUTSCHE BANK AG | U/KB | 25.15 |
| ROBINSONS BANK CORPORATION | U/KB | 25.18 |
| PHILIPPINE BUSINESS BANK INC A SAVINGS | Thrift | 25.29 |
| CARD SME BANK INC A THRIFT BANK | Thrift | 26.88 |
| CHINATRUST BANKING CORPORATION | U/KB | 27.02 |
| KOREA EXCHANGE BANK | U/KB | 27.70 |
| DUMAGUETE CITY DEVELOPMENT BANK INC | Thrift | 28.05 |
| METRO CEBU PUBLIC SAVINGS BANK | Thrift | 28.84 |
| CORDILLERA SAVINGS BANK INC | Thrift | 32.67 |
| CITYSTATE SAVINGS BANK INC | Thrift | 34.02 |
| PHILIPPINE TRUST COMPANY | U/KB | 34.02 |
| MEGA INTERNATIONAL COMMERCIAL BANK CO LTD | U/KB | 36.31 |
| LEMERY SAVINGS & LOAN BANK, INC. | Thrift | 36.42 |
| INTERNATIONALE NEDERLANDEN GROEP BK | U/KB | 40.19 |
| BDO PRIVATE BANK, INC. | U/KB | 41.10 |
| TONG YANG SAVINGS BANK INC | Thrift | 42.78 |
| MALASIQUI PROGRESSIVE SLB, INC | Thrift | 44.94 |
| UNIVERSITY SAVINGS BANK INC | Thrift | 49.01 |
| MICROFINANCE MAXIMUM SB INC | Thrift | 50.22 |
| QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK A THRIFT BANK | Thrift | 51.30 |
| PACIFIC ACE SAVINGS BANK INC | Thrift | 52.21 |
| OPPORTUNITY KAUSWAGAN BANK INC (A MICROFINANCE THRIFT BANK) | Thrift | 53.86 |
| SUN SAVINGS BANK INC | Thrift | 55.30 |
| SAMPAGUITA SAVINGS BANK INC | Thrift | 56.88 |
| JP MORGAN CHASE BANK NATIONAL ASSOCIATION. | U/KB | 57.09 |
| QUEZON COCONUT BANK INC (A THRIFT BANK) | Thrift | 58.23 |
| PROGRESS SAVINGS AND LOAN BANK INC | Thrift | 59.47 |
| BANK OF AMERICA N.A. | U/KB | 60.19 |
| DUNGGANON BANK (A MICROFINANCE THRIFT | Thrift | 62.10 |
| LIFE SAVINGS BANK INC | Thrift | 63.31 |
| PRIDE STAR DEVELOPMENT BANK INC | Thrift | 68.13 |
| BANK ONE SAVINGS AND TRUST CORPORATION | Thrift | 70.54 |
| ILOILO CITY DEVELOPMENT BANK | Thrift | 74.74 |
| MERCHANTS SAVINGS & LOAN ASSN INC | Thrift | 82.33 |
| CENTURY SAVINGS BANK CORPORATION | Thrift | 89.62 |
| PAMPANGA DEVELOPMENT BANK | Thrift | 104.91 |
| BANGKOK BANK PUBLIC CO LTD | U/KB | 105.84 |
| UNITED OVERSEAS BANK PHILIPPINES | Thrift | 106.80 |
| TOWER DEVELOPMENT BANK | Thrift | 107.91 |
| ISLA BANK(A THRIFT BANK) INC | Thrift | 234.58 |
| AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS | U/KB | 406.94 |
| BDO ELITE SAVINGS BANK INC | Thrift | 517.44 |
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