Banks maintain healthy capital, liquidity ratios

Banks maintain healthy capital, liquidity ratios

Big banks’ capital adequacy ratio (CAR) remain sufficient and stable at 17.4 percent on consolidated basis as of end-September 2021, although lower compared to 17.6 percent in the second quarter ending in June.

CAR which is a bank’s measure of capital health in relation to its risks and liabilities, is well-above the 10 percent minimum threshold set by the Bangko Sentral ng Pilipinas (BSP), and eight percent minimum by the Bank for International Settlements.

BSP Governor Benjamin E. Diokno said banks are maintaining sufficient capital and liquidity buffers. On solo basis, banks’ CAR as of end-September stood at 16.9 percent, also above minimum requirements.

BSP Governor Benjamin E. Diokno

“Liquidity buffers also remained well-above the minimum threshold of 100 percent,” said Diokno during his weekly, online press chat last Thursday, Jan. 13.

He said big banks’ industry’s solo liquidity coverage ratio was at 197.5 percent as of end-October 2021.

For smaller banks, he said the minimum liquidity ratios of stand-alone banks surpassed the 20 percent minimum.

“The strong liquidity position of banks enabled them to continue extending credit support to the country’s economy,” said Diokno. He also said the banking sector continue to show resiliency in terms of continued growth in assets, not just loans and deposits, as well as ample capital, liquidity buffers and loan loss reserves.

As of end-November 2021, industry assets increased by seven percent year-on-year to P20.4 trillion mainly on account of deposits which grew by 9.2 percent year-on-year to P15.8 trillion.

“This indicates the continued trust and confidence of the public in the banking system. The strong performance of the banking system amid this crisis is due to its strong fundamentals supported by deep financial sector reforms,” said Diokno.

Deposits accounted for 77.7 percent of total assets. Loans, which comprised majority of the banks’ total assets, remained broad-based across various industry types, said Diokno.

“The BSP’s timely and well-calibrated operational and prudential relief measures proved instrumental in helping banks cope with the impact of the COVID-19 pandemic,” he added.

Diokno also noted that credit activity also showed signs of recovery as loans rose 4.3 percent as of end-November 2021, reversing a 0.1 percent contraction a year ago.

Favorable market outlook, rising vaccination coverage in the country, and the BSP credit-related relief measures are expected to further boost market confidence and encourage bank lending, he said.

“Banks currently remain cautious but project positive business outlook in the next two years,” Diokno also said.