Too high or just right

Rural banks have mixed opinions on whether the capital adequacy ratio (CAR) of 10 percent imposed by the Bangko Sentral ng Pilipinas is too punitive or just good enough to provide a safety net for rural banks and their clients.

As the measure of a bank’s financial strength expressed by the ratio of its capital (net worth and subordinated debt) to its risk-weighted credit exposure (loans), CAR is basically the benchmark that determines a bank’s capacity to meet time liabilities and risks.