Philippines: Banks in better position to support economic recovery

MANILA, Philippines — Philippine banks are in a stronger position to support the country’s recovery from the impact of the COVID pandemic, according to the Bangko Sentral ng Pilipinas.

The central bank highlighted in the Philippine Financial System for the Second Semester of 2022 report that the country’s financial system sustained positive performance and overall stability amid a challenging macroeconomic environment in 2022.

“The Philippine financial system sustained its strong performance in 2022 amid the lingering uncertainties in the global financial system following COVID-19,” the BSP said.

BSP Governor Felipe Medalla said the Philippine banking system remained sound and stable with continued growth in assets, loans, deposits and profit, as well as ample capital and liquidity buffers and provision for credit losses.

“As the economy continues to recover, we expect the overall key performance indicators of banks to further improve and move closer to pre-pandemic levels. This will place banks in a stronger position to support domestic recovery,” Medalla said.

The Philippine banking system makes up the core of the financial system, accounting for 82.8 percent of total resources.

In 2022, total banking assets grew by 10.7 percent to P23.05 trillion, faster than the seven percent recorded in 2021.

By banking group, universal and commercial banks held the largest share of the total assets of the banking system at 94.2 percent or P21.71trillion, followed by thrift banks at 4.2 percent or P968.3 billion and rural and cooperative banks at 1.6 percent or P372.5 billion.

Lending continued to support economic recovery as gross loans rose by 10.8 percent to P12.62 trillion in 2022, faster than the 4.8-percent growth recorded in 2021.

Alongside the improvement in credit activity, the banking system’s non-performing loan (NPL) ratio further eased to 3.2 percent in 2022 from four percent in 2021. This was accompanied by high NPL coverage ratio of 107 percent, increasing from 87.7 percent in 2021.

“The NPL ratio is seen to remain in single-digit and to gradually return to pre-pandemic levels,” the central bank said.

It added that robust growth in deposits mirrored the economy’s recovery and the depositors’ continued confidence in the banking system.

Deposits grew by 9.4 percent to P17.77 trillion in 2022, faster than the nine percent in 2021. These deposits were mostly peso denominated with 84.8 percent share and generated from resident individuals with 45.6 percent and private corporations with 33.4 percent, indicating domestic orientation and stability of banks’ funding source.

The regulator also reported that strong capital position was sustained by the banking system as total capital increased by 5.1 percent to P2.71 trillion in 2022, providing further cushion against shock.

On risk-based capital, the capital adequacy ratios (CARs) of the banking system stood at 15.7 percent on a solo basis and 16.3 percent on a consolidated basis as of end-2022, well above the minimum thresholds of 10 percent set by the BSP and eight percent by the Bank for International Settlements (BIS).

Universal and commercial banks registered ratios of 15.4 percent and 16.1 percent, respectively, on a solo and consolidated bases. Stand-alone thrift banks as well as rural banks and cooperative banks reported their CARs at 20.3 percent, 22 percent, and 18.6 percent, respectively.

Banks likewise maintained ample liquidity to meet liquidity and funding requirements of their clients as the liquidity coverage ratio (LCR) of big banks on a solo and consolidated bases stood at 185.7 percent and 185.4 percent, significantly higher than the 100 percent minimum threshold.

Banks also sustained profitable operations with double-digit growth in net profit of 38 percent to P310.1 billion in 2022, although slower than the 44.8-percent growth in 2021.

“Moving forward, the BSP will continue to pursue strategic reforms that will promote risk governance, digital transformation, and sustainability in the financial system,” the central bank said.

Source: https://www.philstar.com/business/2023/05/08/2264528/banks-better-position-support-economic-recovery