The adequacy of the capital of so-called stand-alone thrift banks showed a slight erosion in the first three months this year, a development regulators said was the result of their collective decision to expand their portfolio of debt notes held for trading.
Stringent regulatory guidelines mandate lenders to set aside as buffer against potential loss a predetermined amount of bank assets which has the effect of diminishing bank capital.
The capital adequacy ratio (CAR) of stand-alone thrift banks declined to 21.66 percent as of end-March this year, although still way above the 10-percent minimum regulatory threshold, the Bangko Sentral ng Pilipinas (BSP) said.
The CAR of thrift banks decreased from the 22.31-percent CAR recorded the previous quarter due to a rise in risk-weighted assets (RWA) brought about by an increase in exposure in debt securities held for trading.
CAR is an indicator of a bank’s ability to absorb losses, and is arrived at using a formula that compares the bank’s assets with the particular risks that they undertake. Some risks, such as investments in government bonds, are considered less risky than other loans granted by banks, such as those to individuals.
The CAR of rural and cooperative banks, meanwhile, increased to 18.24 percent as of end-March, from the previous ratio of 18.17 percent that was registered the previous quarter.
The BSP said the CAR of rural and cooperative banks increased because of “a higher quarter-on-quarter increase in their qualifying capital of 1.17 percent compared to the 0.77-percent rise in their RWA.”
Stand-alone thrift banks and rural and cooperative banks, or those that are not affiliated with any of the other big universal and commercial banks, account for 3.7 percent of the banking system’s assets as of the end of the first quarter of this year.
The BSP monitors the capital position of banks against their risk-taking activities as part of its key policy objective to balance the objectives of maintaining financial stability in the country and providing access to capital to small businesses.