Capital Adequacy Ratio Philippines: A Guide to Bank Performance

The capital adequacy ratio is a crucial indicator of a bank's financial health in the Philippines. It measures the bank's ability to absorb potential losses.

In the Philippines, the capital adequacy ratio is set by the Bangko Sentral ng Pilipinas (BSP) at 10% for banks. This means that banks must maintain a minimum of 10% of their risk-weighted assets in the form of capital.

Banks that fail to meet this requirement may face penalties or restrictions on their operations. For instance, a bank with a capital adequacy ratio below 8% may be required to submit a corrective action plan to the BSP.

Maintaining a high capital adequacy ratio is essential for banks to build trust with their customers and investors.

The BSP has approved changes in the computation of how much capital a bank should have as a percentage of risk-weighted credit exposures.

BSP Governor Benjamin Diokno stated that the Monetary Board had issued Resolution 372 approving the modifications to the guidelines on the computation of the minimum required capital and the risk-based capital adequacy ratio (CAR).

The term capital shall be identical to unimpaired capital and surplus, and will combine capital accounts and net worth.

For state-run banks, the regulator stated that the adjustment should not include the unsecured peso-denominated credit accommodations to the government.

The risk-weighted amount is now the product of the net carrying amount of the assets and the risk weight associated with those assets.

Banks in the Philippines stayed well capitalized as the CAR remained above 10% minimum set by BSP, as well as the 8% under the Basel requirements.

The BSP made complementary moves to assist the economy back to its growth trajectory as soon as possible, including keeping the policy rate at a record low.

The BSP reduced the reserve requirement, provided advances to the national government, and issued a long list of regulatory relief measures for banks.

LANDBANK remains strong and adequately capitalized, with a total assets of P3 trillion as of June 2023, a 7.9% increase from the same period a year ago.

The Bank's net income stood at P20.9 billion from loans and investments earnings, exceeding its first-half target by 19% or P3.3 billion.

LANDBANK's Capital Adequacy Ratio (CAR) remains at a healthy level of 16.61%, well above the 10% minimum requirement of the BSP.

The Bank's Common Equity Tier 1 (CET 1) ratio stands at 15.73%, also compliant with the 10.25% CET 1 requirement.

Even with the Bank's P50 billion seed capital to the MIC, LANDBANK will still meet its CAR requirements.

The BSP tracks the CAR and CET 1 ratio of banks to ensure they can absorb financial risks and comply with statutory capital levels.