PHL banking system remains stable in the 1st half on strong earnings, ample capital

THE PHILIPPINE banking system remained stable and robust in the first half, posting higher income, sufficient capital and liquidity buffers amid a high-interest rate environment and inflationary pressures.

The financial system sustained its robust performance and supported economic activity, the Bangko Sentral ng Pilipinas (BSP) said in a report on the Philippine financial system for the first semester.

“The overall key performance indicators of the Philippine financial system and the domestic banking system show that this sector continues to be a source of strength for the Philippines, capable of meeting the demands of a growing digital and sustainable economy,” BSP Governor Eli M. Remolona, Jr. said in a statement. 

The banking sector had a strong balance sheet, profitable business operations, enough capital and liquidity buffers, as well as ample provisions for losses, the BSP said.

Banks’ assets rose by 9.1% to P23.3 trillion in June, faster than the 7.8% growth recorded last year. By banking group, universal and commercial banks (U/KBs) had the largest share of assets at 93.9%.

For the January-June period, banks’ net profit increased by 27.7% to P182.8 billion, faster than the 16.7% growth in the same period last year.

Banks’ interest income surged by 48.4% year on year. Loans to private firms (P221.6 billion), households (P129.9 billion), as well as investments in securities (P130.3 billion), generated bulk of banks’ interest income. 

Overall return on equity and return on assets improved to 12.8% (from 9.6%) and 1.6% (from 1.2%), respectively.

The banking sector remained profitable as revenues from lending and investing activities boosted earnings.

Total investments reached P6.6 trillion in the first semester, 9.2% higher year on year. Around 60% or P4 trillion of the banking system’s investments were debt securities measured at amortized cost.

“Amid growing resources, deposits and earnings, Philippine banks remain well-capitalized and highly liquid, with a capital adequacy ratio and key liquidity ratios exceeding the BSP regulatory and international standards,” the BSP said.

As of March, the capital adequacy ratios (CARs) of the banking system were at 16% and 16.6% on solo and consolidated bases, respectively. All banking groups also maintained high capital ratios.

The consolidated CAR of the U/KB industry stood at 16.4%. The CARs of stand-alone thrift banks (TBs), rural and cooperative banks (RCBs), and digital banks (DGBs) reached 20.8%, 21.3%, and 20%, respectively.

The risk-based capital ratio of a bank, expressed as a percentage of qualifying capital to risk-weighted assets, should not be less than 10% for both solo and consolidated basis. 

“Based on the results of the latest stress test exercises, the banking system’s post-shock CAR would remain above the regulatory minima under assumed scenarios, including a possible shock in the property market. The BSP conducts regular and ad hoc stress tests as part of its enhanced surveillance toolkit,” the BSP said. 

Philippine banks had a stronger capital position in the first semester, with equity growing by 11% to P2.9 trillion as of end-June, beating the 2.7% expansion a year ago, the BSP said. 

U/KBs held the largest share of the banking system’s total capital at 91.7% (P2.6 trillion). The remaining amount was held by TBs, RCBs, and DGBs at 5.3% (P152.3 billion), 2.5% (P72.2 billion), and 0.4% (P11.6 billion), respectively.

The BSP noted that banks were able to maintain sufficient buffers to meet liquidity and funding requirements. 

Preliminary data showed the U/KB industry’s solo liquidity coverage ratio stood at 183.1% as of June, while its net stable funding ratio hit 139.1% as of March. Both are well above the 100% minimum threshold set by the central bank.

The ratio of deposits to loans also stood at 143.1% in the first half, a tad lower than 144.5% from the same period a year ago, but still well above 100%, central bank data showed. 

“Moving forward, the BSP is steadfast in ensuring that the Philippine financial system is safe and sound in keeping with its financial stability mandate,” the BSP said. 

“In this regard, the BSP will continue to collaborate and closely work with relevant stakeholders in the adoption of key financial sector reforms aimed at ensuring institutional stability, promoting responsible innovation, and advancing sustainability in the financial system,” it added. 

As of June, there were a total of 490 banks with 12,845 branches and other offices, 2,064 nonbank financial institutions with 22,440 branches, and one offshore banking unit. — Keisha B. Ta-asan