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Last week, the Union Bank of the Philippines (Unionbank) also went into capital-raising effort as it started offering unsecure subordinated notes to investors to beef up its capital by P5 billion, in order to lift is capital adequacy ratio (CAR) to a more comfortable level that would allow it to absorb more risk through aggressive lending.

The bank offered investors to subscribe to its unsecured subordinated notes, which qualify as Tier 2, or supplementary capital. It informed the Philippine Stock Exchange of the approval from the Bangko Sentral ng Pilipinas of the notes offering. Unionbank had appointed HSBC and ING as arrangers of the debt sale.

Unionbank said the capital-raising exercise would help lift the CAR of the bank to 14.4 percent from 11.4 percent as of end-June. Bank president Victor Valdepeñas said, with a CAR of 14.4 percent, the bank “will be at a level that is quite comfortable relatives to the requirement.”

The CAR is used as a measure of capital strength against risk-weighted credit exposures. Local banks are required to maintain their CAR at no less than 10 percent. A higher CAR would allow banks to absorb more risks from the lending business.

In 2007, Unionbank’s CAR stood at 16.4 percent. However, it has fallen because of the rise in risk-weighted assets. Its ratio however, had slightly improved from 10.8 percent in March to 11.4 percent in June.

In its recent report, global debt watcher Fitch Ratings said its outlook on Unionbank was “stable” despite the bank’s reduced capital position and a challenging operating environment for lenders amid the economic downturn.

Unionbank is the eight largest among the 38 commercial and universal banks in the country today. It 36% owned by conglomerate Aboitiz Equity Ventures Inc. Other major shareholders of the bank are pension fund Social Security System with 23% and Insular Life Assurance Co. Ltd. with 16%.