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 Banks currently do not meet these guidelines as of December 31, 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%)
- Planters Development Bank (Total CAR of 6.04%)
- The Real Bank (Total CAR of 6.34%)
- The Palawan Bank (Total CAR of 8.09%)
Tier One CAR
- 1st Valley Bank (Tier One CAR of 0.00%)
- 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 3.02%)
- The Real Bank (Tier One CAR of 5.43%)
- The Palawan Bank (Tier One CAR of 5.57%)
- China Bank Savings Inc. (Tier One CAR of 8.37%)
- Sterling Bank of Asia Inc. (Tier One CAR of 9.86%)
The Total CAR and Tier 1 CAR of Philippine Banks as of December 31, 2013 is as follows:(Banks that do not meet BSP's minimum capital requirements are highlighted in yellow):
| Philippine Banking System | ||
| TOTAL CAR | ||
| December 31, 2013 | ||
| Type of Bank | Total CAR | |
| BATAAN SAVINGS AND LOAN BANK | Thrift | 0.00 |
| PLANTERS DEVELOPMENT BANK | Thrift | 6.04 |
| THE REAL BANK (A THRIFT BANK) INC | Thrift | 6.34 |
| THE PALAWAN BANK (PALAWAN DB) INC | Thrift | 8.09 |
| EQUICOM SAVINGS BANK INC | Thrift | 10.14 |
| UNITED COCONUT PLANTERS BANK | U/KB | 10.26 |
| CHINA BANK SAVINGS INC | Thrift | 11.15 |
| CITY SAVINGS BANK INC | Thrift | 11.30 |
| SECURITY BANK SAVINGS CORPORATION | Thrift | 12.09 |
| BANK OF THE PHIL ISLANDS | U/KB | 12.15 |
| ENTERPRISE BANK INC (A THRIFT BANK) | Thrift | 12.52 |
| PHIL POSTAL SAVINGS BANK INC | Thrift | 12.52 |
| STANDARD CHARTERED BANK | U/KB | 12.89 |
| METROPOLITAN BANK & TCO | U/KB | 13.11 |
| OPPORTUNITY KAUSWAGAN BANK INC (A MICROFINANCE | Thrift | 13.28 |
| BDO UNIBANK INC | U/KB | 13.33 |
| STERLING BANK OF ASIA INC (A SAVINGS | Thrift | 13.84 |
| COMSAVINGS BANK | Thrift | 13.96 |
| BPI FAMILY SAVINGS BANK INC | Thrift | 14.12 |
| WEALTH DEVELOPMENT BANK CORPORATION | Thrift | 14.13 |
| SECURITY BANK CORP | U/KB | 14.37 |
| UNIVERSITY SAVINGS BANK INC | Thrift | 14.80 |
| RIZAL COMM'L BANKING CORP | U/KB | 15.10 |
| BPI GLOBE BANKO INC A SAVINGS BANK | Thrift | 15.40 |
| CHINA BANKING CORP | U/KB | 15.41 |
| HONGKONG & SHANGHAI BANKING CORP | U/KB | 15.45 |
| ANZ BANKING GROUP LTD | U/KB | 15.49 |
| 1ST VALLEY BANK INC A DEVELOPMENT BANK | Thrift | 15.70 |
| WORLD PARTNERS BANK (A THRIFT BANK) | Thrift | 15.70 |
| LUZON DEVELOPMENT BANK | Thrift | 16.16 |
| PHIL BANK OF COMMUNICATIONS | U/KB | 16.18 |
| PHILIPPINE RESOURCES SAVINGS BANKING | Thrift | 16.31 |
| PENBANK INC (A PDB) (FORMERLY: PENINSULA | Thrift | 16.36 |
| EAST WEST BANKING CORP | U/KB | 16.44 |
| CITIBANK SAVINGS INC | Thrift | 16.45 |
| RCBC SAVINGS BANK INC | Thrift | 16.64 |
| PHIL SAVINGS BANK | Thrift | 16.92 |
| PHIL NATIONAL BANK | U/KB | 16.95 |
| VILLAGE BANK INC (A THRIFT BANK) | Thrift | 17.14 |
| HIYAS BANKING CORPORATION | Thrift | 17.37 |
| FARMERS SAVINGS & LOAN BANK INC | Thrift | 17.93 |
| BPI DIRECT SAVINGS BANK INC | Thrift | 18.25 |
| ASIA UNITED BANK | U/KB | 18.29 |
| PRODUCERS SAVINGS BANK CORPORATION | U/KB | 18.74 |
| NORTHPOINT DEV'T BANK INC | Thrift | 19.23 |
| UNION BANK OF THE PHILS | U/KB | 19.68 |
| BATAAN DEVELOPMENT BANK | Thrift | 19.86 |
| LAND BANK OF THE PHILIPPINES | U/KB | 20.10 |
| PHILIPPINE VETERANS BANK | U/KB | 20.23 |
| CITIBANK, N.A. | U/KB | 20.54 |
| MAYBANK PHILIPPINES INC | U/KB | 20.64 |
| MALAYAN BANK SAVINGS AND MORT BANK INC | Thrift | 21.38 |
| ROBINSONS BANK CORPORATION | U/KB | 22.69 |
| BANK OF COMMERCE | U/KB | 22.91 |
| THE BNK OF TOKYO-MITSUBISHI UFJ LTD | U/KB | 23.45 |
| DUMAGUETE CITY DEV BANK INC | Thrift | 23.79 |
| FIRST CONSOLIDATED BANK INC (A PDB) | Thrift | 24.00 |
| PHILIPPINE BUSINESS BANK INC A SAVINGS | Thrift | 24.22 |
| DEVELOPMENT BANK OF THE PHIL | U/KB | 24.33 |
| BANK OF CHINA LIMITED-MANILA BRANCH | U/KB | 24.95 |
| UCPB SAVINGS BANK | Thrift | 25.61 |
| CTBC BANK (PHILIPPINES) CORP | U/KB | 25.99 |
| ALLIED SAVINGS BANK | Thrift | 26.05 |
| MIZUHO BANK LTD - MANILA BRANCH | U/KB | 26.43 |
| METRO CEBU PUBLIC SAVINGS BANK | Thrift | 27.38 |
| CARD SME BANK INC A THRIFT BANK | Thrift | 27.77 |
| BUSINESS AND CONSUMERS BANK (A DB) | Thrift | 29.40 |
| LIFE SAVINGS BANK INC | Thrift | 29.88 |
| KOREA EXCHANGE BANK | U/KB | 30.22 |
| DEUTSCHE BANK AG | U/KB | 30.47 |
| INTER-ASIA DEVELOPMENT BANK | Thrift | 31.10 |
| HSBC SAVINGS BANK(PHILS) INC | Thrift | 31.30 |
| CITYSTATE SAVINGS BANK INC | Thrift | 31.61 |
| MICROFINANCE MAXIMUM SB INC | Thrift | 31.85 |
| CORDILLERA SAVINGS BANK INC | Thrift | 32.66 |
| LEMERY SAVINGS & LOAN BANK, INC. | Thrift | 32.92 |
| MEGA INT'L COMM'L BANK CO LTD | U/KB | 33.93 |
| MARITIME SAVINGS BANK CORPORATION | Thrift | 35.24 |
| PHIL TRUST COMPANY | U/KB | 35.93 |
| PAMPANGA DEVELOPMENT BANK | Thrift | 37.58 |
| BDO PRIVATE BANK, INC. | U/KB | 37.73 |
| INTERNATIONALE NEDERLANDEN GROEP BK | U/KB | 40.44 |
| MALASIQUI PROGRESSIVE SLB, INC | Thrift | 45.99 |
| TONGYANG SAVINGS BANK INC | Thrift | 46.38 |
| SUN SAVINGS BANK INC | Thrift | 46.56 |
| DUNGGANON BANK (A MICROFINANCE THRIFT | Thrift | 49.95 |
| QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK | Thrift | 50.54 |
| PACIFIC ACE SAVINGS BANK INC | Thrift | 51.89 |
| TOWER DEVELOPMENT BANK | Thrift | 52.68 |
| PRIDE STAR DEVELOPMENT BANK INC | Thrift | 52.93 |
| SAMPAGUITA SAVINGS BANK INC | Thrift | 55.83 |
| BANK OF AMERICA N.A. | U/KB | 56.29 |
| JP MORGAN CHASE BANK NATIONAL ASSN. | U/KB | 56.71 |
| OPTIMUM DEVELOPMENT BANK INC | Thrift | 57.91 |
| PROGRESS SAVINGS AND LOAN BANK INC | U/KB | 58.76 |
| QUEZON COCONUT BANK INC (A THRIFT BANK) | Thrift | 67.25 |
| MERCHANTS SAVINGS & LOAN ASSN INC | Thrift | 69.79 |
| BANK ONE SAVINGS AND TRUST CORP. | Thrift | 71.93 |
| MBANK PHILIPPINES (A THRIFT BANK) INC | Thrift | 79.24 |
| BANGKOK BANK PUBLIC CO LTD | U/KB | 88.76 |
| CENTURY SAVINGS BANK CORPORATION | Thrift | 90.55 |
| AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS | U/KB | 132.08 |
| UNITED OVERSEAS BANK PHILIPPINES | Thrift | 137.17 |
| ISLA BANK(A THRIFT BANK) INC | Thrift | 235.87 |
| BDO ELITE SAVINGS BANK INC | Thrift | 527.45 |
| Philippine Banking System | ||
| Tier One CAR | ||
| December 31, 2013 | ||
| Bank | Type of Bank | Tier One CAR |
| 1ST VALLEY BANK INC A DEVELOPMENT BANK | Thrift | 0.00 |
| 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 | 3.02 |
| THE REAL BANK (A THRIFT BANK) INC | Thrift | 5.43 |
| THE PALAWAN BANK (PALAWAN DB) INC | Thrift | 5.57 |
| CHINA BANK SAVINGS INC | Thrift | 8.47 |
| STERLING BANK OF ASIA INC (A SAVINGS | Thrift | 9.86 |
| UNITED COCONUT PLANTERS BANK | U/KB | 10.26 |
| CITY SAVINGS BANK INC | Thrift | 10.42 |
| SECURITY BANK SAVINGS CORPORATION | Thrift | 11.17 |
| PHIL POSTAL SAVINGS BANK INC | Thrift | 11.59 |
| PHIL BANK OF COMMUNICATIONS | U/KB | 11.83 |
| BANK OF THE PHIL ISLANDS | U/KB | 12.15 |
| STANDARD CHARTERED BANK | U/KB | 12.32 |
| WEALTH DEVELOPMENT BANK CORPORATION | Thrift | 13.09 |
| METROPOLITAN BANK & TCO | U/KB | 13.11 |
| BDO UNIBANK INC | U/KB | 13.22 |
| BPI FAMILY SAVINGS BANK INC | Thrift | 13.23 |
| PHIL SAVINGS BANK | Thrift | 13.81 |
| EAST WEST BANKING CORP | U/KB | 13.83 |
| LAND BANK OF THE PHILIPPINES | U/KB | 13.98 |
| SECURITY BANK CORP | U/KB | 14.37 |
| PHILIPPINE RESOURCES SAVINGS BANKING | Thrift | 14.70 |
| BPI GLOBE BANKO INC A SAVINGS BANK | Thrift | 14.76 |
| CHINA BANKING CORP | U/KB | 14.79 |
| COMSAVINGS BANK | Thrift | 14.91 |
| LUZON DEVELOPMENT BANK | Thrift | 15.03 |
| ANZ BANKING GROUP LTD | U/KB | 15.07 |
| RIZAL COMM'L BANKING CORP | U/KB | 15.10 |
| WORLD PARTNERS BANK (A THRIFT BANK) | Thrift | 15.22 |
| PHIL NATIONAL BANK | U/KB | 15.37 |
| HONGKONG & SHANGHAI BANKING CORP | U/KB | 15.45 |
| PENBANK INC (A PDB) (FORMERLY: PENINSULA | Thrift | 15.70 |
| CITIBANK SAVINGS INC | Thrift | 15.76 |
| RCBC SAVINGS BANK INC | Thrift | 15.96 |
| DEVELOPMENT BANK OF THE PHIL | U/KB | 16.75 |
| VILLAGE BANK INC (A THRIFT BANK) | Thrift | 16.76 |
| FARMERS SAVINGS & LOAN BANK INC | Thrift | 17.03 |
| HIYAS BANKING CORPORATION | Thrift | 17.10 |
| BPI DIRECT SAVINGS BANK INC | Thrift | 17.38 |
| PRODUCERS SAVINGS BANK CORPORATION | Thrift | 18.07 |
| ASIA UNITED BANK | U/KB | 18.15 |
| UNION BANK OF THE PHILS | U/KB | 18.79 |
| NORTHPOINT DEV'T BANK INC | Thrift | 19.23 |
| MAYBANK PHILIPPINES INC | U/KB | 19.52 |
| BATAAN DEVELOPMENT BANK | Thrift | 19.61 |
| CITIBANK, N.A. | U/KB | 19.79 |
| PHILIPPINE VETERANS BANK | U/KB | 20.18 |
| MALAYAN BANK SAVINGS AND MORT BANK INC | Thrift | 20.77 |
| THE BNK OF TOKYO-MITSUBISHI UFJ LTD | U/KB | 22.63 |
| ROBINSONS BANK CORPORATION | U/KB | 22.69 |
| BANK OF COMMERCE | U/KB | 22.75 |
| FIRST CONSOLIDATED BANK INC (A PDB) | Thrift | 23.09 |
| DUMAGUETE CITY DEV BANK INC | Thrift | 23.39 |
| PHILIPPINE BUSINESS BANK INC A SAVINGS | Thrift | 23.58 |
| BANK OF CHINA LIMITED-MANILA BRANCH | U/KB | 24.38 |
| UCPB SAVINGS BANK | Thrift | 24.87 |
| ALLIED SAVINGS BANK | Thrift | 25.19 |
| CTBC BANK (PHILIPPINES) CORP | U/KB | 25.23 |
| MIZUHO BANK LTD - MANILA BRANCH | U/KB | 25.49 |
| METRO CEBU PUBLIC SAVINGS BANK | Thrift | 26.73 |
| KOREA EXCHANGE BANK | U/KB | 29.81 |
| DEUTSCHE BANK AG | U/KB | 30.11 |
| HSBC SAVINGS BANK(PHILS) INC | Thrift | 30.62 |
| CITYSTATE SAVINGS BANK INC | Thrift | 31.10 |
| CORDILLERA SAVINGS BANK INC | Thrift | 32.20 |
| LEMERY SAVINGS & LOAN BANK, INC. | Thrift | 32.59 |
| MEGA INT'L COMM'L BANK CO LTD | U/KB | 32.98 |
| PHIL TRUST COMPANY | U/KB | 35.53 |
| BDO PRIVATE BANK, INC. | U/KB | 37.57 |
| INTERNATIONALE NEDERLANDEN GROEP BK | U/KB | 40.19 |
| MICROFINANCE MAXIMUM SB INC | Thrift | 42.65 |
| OPPORTUNITY KAUSWAGAN BANK INC (A MICROFINANCE | Thrift | 43.63 |
| SUN SAVINGS BANK INC | Thrift | 45.66 |
| MALASIQUI PROGRESSIVE SLB, INC | Thrift | 45.80 |
| TONGYANG SAVINGS BANK INC | Thrift | 46.38 |
| DUNGGANON BANK (A MICROFINANCE THRIFT | Thrift | 49.61 |
| QUEEN CITY DEVELOPMENT BANK INC OR QUEENBANK | Thrift | 50.03 |
| UNIVERSITY SAVINGS BANK INC | Thrift | 50.81 |
| PACIFIC ACE SAVINGS BANK INC | Thrift | 51.79 |
| BANK OF AMERICA N.A. | U/KB | 56.09 |
| JP MORGAN CHASE BANK NATIONAL ASSN. | U/KB | 56.55 |
| PROGRESS SAVINGS AND LOAN BANK INC | Thrift | 58.76 |
| QUEZON COCONUT BANK INC (A THRIFT BANK) | Thrift | 58.83 |
| SAMPAGUITA SAVINGS BANK INC | Thrift | 60.09 |
| LIFE SAVINGS BANK INC | Thrift | 64.98 |
| PRIDE STAR DEVELOPMENT BANK INC | Thrift | 68.06 |
| MERCHANTS SAVINGS & LOAN ASSN INC | Thrift | 69.59 |
| BANK ONE SAVINGS AND TRUST CORP. | Thrift | 71.47 |
| MBANK PHILIPPINES (A THRIFT BANK) INC | Thrift | 79.24 |
| BANGKOK BANK PUBLIC CO LTD | U/KB | 87.79 |
| CENTURY SAVINGS BANK CORPORATION | Thrift | 89.51 |
| TOWER DEVELOPMENT BANK | Thrift | 110.08 |
| PAMPANGA DEVELOPMENT BANK | Thrift | 116.10 |
| AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILS | U/KB | 132.08 |
| UNITED OVERSEAS BANK PHILIPPINES | Thrift | 137.02 |
| ISLA BANK(A THRIFT BANK) INC | Thrift | 235.60 |
| CARD SME BANK INC A THRIFT BANK | Thrift | 264.25 |
| BDO ELITE SAVINGS BANK INC | Thrift | 527.45 |
Source: www.bsp.gov.ph
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