Banks’ capital health improves in H1

Published September 23, 2021, 4:30 PM

by Lee C. Chipongian

Big banks in the country remained well-capitalized despite the prolonged pandemic-induced crisis, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Governor Benjamin E. Diokno said that big banks’ capital adequacy ratio (CAR), a measure of lenders’ solvency, improved to 17.6 percent in the first six months of the year from 17.1 percent at end-2020.

Philippine big banks continue to have sufficient capital amid the pandemic

Diokno said the latest CAR is well-above the 10 percent minimum threshold set by the central bank.

The universal and commercial banks’ CAR also improved from end March’s 16.9 percent.

Despite the pandemic’s impact on borrowers’ ability to pay their loans, Diokno said banks’ risk-taking activities were supported by adequate capital which was mainly composed of common equity and retained earnings.

Diokno also cited the latest central bank internal stress test exercises showing most banks are capable of absorbing losses under scenarios of assumed credit impairment because banks are proactive in making sure their credit risks are sufficiently funded.

On solo basis, banks’ CAR for the first half of 2021 stood at 17 percent.

“Internal stress test exercises show that banks’ capital position is sufficient to withstand assumed credit impairment in bank loans,” Diokno said.

Despite the pandemic and increasing bad loans ratio which is expected to reach a peak of 8.2 percent in 2022, Diokno said banks remain profitable with net profits of P122.7 billion in the first half of the year.

As for banks’ liquidity, they have maintained sufficient buffers to meet their operating requirements, the central bank chief noted.

At end-June, big banks’ liquidity coverage ratio (LCR) was at 198.4 percent and 196.4 percent, respectively.

The relatively high LCR indicates banks’ ability to fund requirements during short-term liquidity shocks, said Diokno.

The banking industry’s solo and consolidated net stable funding ratio also reached 144.4 percent and 144.5 percent, respectively, during the same period. This means that banks have stable funding to serve their customers in the medium term.

“These key metrics show that banks are in a strong position to service the financing requirements of our recovering economy,” Diokno said.

On one hand, the 47 universal and commercial banks accounted for the lion’s share of the banking systems’ capital with 91.1 percent. On the other hand, the rural and cooperative banks have 2.2 percent while thrift banks have 6.7 percent share.

“The minimum liquidity ratios of stand-alone thrift banks, rural and cooperative banks surpassed the 20 percent minimum at end-June 2021,” Diokno also said.

 
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