Wednesday, 11 February 2009

Capital-adequacy ratio of top 3 Philippine banks still above 13% at end-2008

Erik de la Cruz
The Business Mirror

THE Philippines’ three largest banks managed to keep their individual capital-adequacy ratio (CAR)—which measures how susceptible they are to failure—at more than 13 percent at the end of 2008, well above minimum standards.

Banco de Oro Unibank (BDO), Metropolitan Bank & Trust Co. (Metrobank) and Bank of the Philippine Islands (BPI) also kept their nonperforming-loan ratios (NPL) below 5 percent, their latest balance sheets show.

Henry Sy-led BDO ended 2008 as the biggest with total assets of P808 billion, and with CAR of 13.53 percent, slightly lower than the end-September level of 13.68 percent, and NPL ratio of 4.01 percent.

George Ty’s Metrobank, which used to be No. 1 in size, was the second- biggest with total assets of P758.5 billion. Its CAR improved to 13.45 percent from 13.0 percent as of end-September, while its NPL ratio stood at 3.89 percent.

BPI, controlled by conglomerate Ayala Corp. and partly owned by DBS Bank of Singapore, remained the third-biggest with total assets of P658.4 billion and NPL ratio of 3.55 percent.

Its CAR rose to 14.16 percent from 13.2 percent as of end-September.

The Big Three’s CARs exceeded the statutory level set by the Bangko Sentral ng Pilipinas (BSP) at 10.0 percent and the standard set by the Bank for International Settlements—which serves as a bank for central banks—at 8.0 percent.

Debt watcher Fitch Ratings recently said local banks are well-capitalized and relatively liquid but lenders and regulators in the Philippines and elsewhere in Asia are likely to see a need for additional capital to protect their balance sheets from the expected erosion of profits and increase in soured loans this year.

Amid a deteriorating outlook for Asian economies, Fitch said banks are facing the grim prospects of lower revenue, higher NPLs and bad-debt charges.

These trends, it said, may prompt banks to raise additional capital “to offset the effect of credit losses and to boost capital levels to the new higher norms that are becoming the standard in the wake of the credit crisis.”

Early this month BDO disclosed two initiatives aimed at further boosting its capital position and preparing itself for further expansion and potential acquisition opportunities.

It was looking to raise up to P13 billion by selling notes and shares.

BDO expects the additional capital to improve its CAR to around 16 percent.

BPI, meanwhile, has the option to raise fresh capital of up to P10 billion this year.

It obtained approval from the BSP last year for a P15-billion offering of Tier 2 notes, and in November raised P5 billion from the initial offering.

Metrobank has not disclosed any capital-raising plans yet.

The Philippine banking system’s average CAR of 15.2 percent as of end-September 2008 was higher than those of Malaysia (13.0 percent) and Korea (12.0 percent) but lower than that of Indonesia (17.1 percent). Thailand had the highest CAR in the region at 18.4 percent.

The local industry’s average NPL ratio had eased to 4.5 percent as of end-September from 5.7 percent a year ago.

There were 835 banking institutions operating in the Philippines as of end-September, with the entire system consisting of 38 universal and commercial banks, 80 thrift banks, and 717 rural banks.

According to BSP Governor Amando Tetangco Jr., the “ideal” situation is to have five or six local banks, plus branches of foreign banks holding about 70 percent of the total banking system’s assets.

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