MANILA, October 26, 2004 (STAR) By Des Ferriols - The local banking industryís capital adequacy ratio (CAR) remained well above the required minimum of 10 percent.

The BSP said in its 2003 capitalization report that the Philippine banking systemís average capital adequacy ratios (CAR) as of end-December 2003 stood at 16 percent for individual banks and 17.47 percent for banks including their subsidiaries.

According to the BSP, however, the average CAR at the end of 2003 declined by 27 basis points and 30 basis points compared to their end-June 2003 CAR of 16.3 percent on solo basis and 17.77 percent on consolidated basis.

The BSP attributed the banking systemís CAR mainly to the introduction of capital charges on market risk in the capital adequacy framework for universal and commercial banks that took effect on July 2003.

Before this shift, the BSP explained that only capital charge on credit risk was included in the CAR calculation for all types of banks.

The CAR is a risk-sensitive measure of a bankís solvency, relating to capital to risk assets weighed according to their relative riskiness. The higher the ratio, the better for the bank since it means that its capital assets were enough to cover untoward financial problems.

Under the BSPís rules, all banks are required to maintain a CAR of at least 10 percent both on solo basis (i.e. head office plus branches) and consolidated bases (i.e. parent bank plus subsidiary financial undertakings).

The BSP reported that universal banks and commercial banks which accounted 90.1 percent of the banking systemís total assets, reported an overall CAR of 15.71 percent on solo basis and 17.35 percent on consolidated basis as of end-December 2003.

The BSP said that these rates reflected a decline of 81 basis points and 80 basis points, respectively, because of the change in the calculations.

On the other hand, the BSP said the overall CAR of the thrift banking industry were down by one basis point and two basis points compared to their end-June CAR of 18.95 percent on solo basis and 18.96 percent on consolidated basis.

Reported by: Sol Jose Vanzi

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