Banks' capital adequacy ratio dips

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MANILA, Philippines (Xinhua) – The buffer of banks against losses declined at the end of March following the implementation of stricter regulations over debt securities qualified as capital that took effect at the start of 2014, the central bank said today.

Industry capitalization levels, however, remained above the 10 percent minimum prescribed by the Philippine central bank.

Data from the central bank showed that the average capital adequacy ratio (CAR) of universal and commercial banks stood at 15. 45 percent on solo basis and at 16.35 percent on consolidated basis in March.

These levels are lower than the solo and consolidated CARs of 16.5 percent and 17.65 percent, respectively, recorded in end- December.

The Philippine central bank, however, said the December 2013 ratios were calculated under the previous prudential regime.

Banks’ CAR, which is a measure of capital they have relative to risk-weighted assets such as loans and investments, serves as buffers for potential losses from defaults.

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The central bank said today’s report on capital was the first since the Basel III regulations took effect.

Under Basel III, debt securities issued by banks, which qualified as a lower kind of capital that could augment their CARs under previous rules, were no longer recognized by regulators. The new rules prescribed that if banks want to continue issuing debt securities, these notes need to have loss-absorbency features to make them act more like real equity capital.

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