THE financial health of the local banking system was adjudged as one of the most resilient anywhere on the planet based on a metric recognized not just by the Bangko Sentral ng Pilipinas (BSP), but by such other global institutions, for instance, as the Bank for International Settlements (BIS).
The BSP said the capital adequacy ratio (CAR) of the country’s universal and regular commercial banks in the first six months averaged 15.48 percent on solo basis, and 16.42 percent on consolidated basis. The CAR attests to the adequacy of lender capital in relation to class or volume of risk the industry is exposed to without having to ask shareholders to put in more.
The latest CAR report proved above the 15.45 percent and 16.35 percent ratios registered in March last year, which was the inaugural reporting period for universal and commercial banks under the Basel III framework.
Among the so-called pillar changes in the implementation of Basel III by local banks is the composition of the banks’ capital, which only allows for higher quality assets to be counted as such.
As a result, the banks’ capital at end-June this year comprised mostly of common equity Tier 1 or CET1, which are the highest quality among instruments eligible as bank capital.
The CET 1 of universal and commercial banks accounted for 12.87 percent and 13.89 percent of risk-weighted assets (RWAs) on solo and consolidated bases as at end-June.
“The increase was on account of the banks’ capital raising activities and earnings generated in the second quarter of 2015, which enabled the industry to raise its qualifying capital by 6 percent quarter-on-quarter to P 973.6 billion in June this year,” the BSP said.
Moody’s Investors Service earlier rated Philippine banks as one of the most resilient in the world after subjecting the industry to a stress test showing it has enough capital to weather financial reverses without toppling over in the event of a crisis.
Under Moody’s hypothetical extremely severe stress scenario, the global capital adequacy ratio would drop 5.5 percentage points, representing a deeper decline averaging only 4.9 percentage points in the case of the Philippines.
Also, the average bank capitalization globally under this scenario was seen at 6 percent, much lower than the 8.4 percent adequacy ration seen in the Philippines.
The estimated 8.4-percent capitalization ratio for the Philippines under a “stressed” scenario was rated better than the international benchmark of 8 percent prescribed under Basel III regulations.
“The Philippine banks’ resilience to stress is positive compared to other banking systems around the world,” Moody’s said in its latest banking outlook report, titled “Resilience of Domestic Economy Drives Stable Outlook.”
Also, the BSP said the soured or nonperforming loans (NPLs) of universal and commercial banks remained low at only 1.86 percent of total loan portfolio despite the expansion of aggregate loans as of end-August this year.
The universal and commercial banks’ gross NPL ratio in August represented an improvement from gross NPLs averaging 1.9 percent a month earlier.
Since November 2014 this loan quality indicator stayed below 2 percent of total loan portfolio.
The BSP also noted that while the industry maintained a low NPL ratio, the big guns of the banking sector were also able to set aside loan-loss reserves for potential losses.
As of end-August, the industry provisioned or set aside the equivalent of 141.19 percent of its gross NPLs as loan-loss cover.