PH financial buffers remain strong
The country’s financial system continues to maintain strong reserves underpinned by sustained credit growth, banks’ sufficient capital and asset quality as of the first semester of the year. Data from the Bangko Sentral ng Pilipinas (BSP) show that banks and the entire financial sector have accumulated buffers, have set aside enough loan loss provisioning and liquidity to “serve as early defenses against external shocks.”
Based on end-August numbers, banks’ loan and asset quality remained healthy with a non-performing loan (NPL) ratio of 1.97 percent from 2.23 percent same time in 2016.
“The loan quality of the banking system remain quite satisfactory,” according to BSP Governor Nestor A. Espenilla Jr. He said the NPL ratio has consistently registered a declining trend. “Banks today are very prudently maintaining an adequate allowance for expected credit losses. So, (taking the) loan loss provisioning of banks today and the gross NPL, the net NPL ratio is actually minus 0.3 percent.”
The banking sector have enough allowance for credit losses amounting to R11.6 billion as of end-June resulting in improved NPL coverage ratio of 114 percent.
Data also show that banks have earned a net income of R81.3 billion at the end of the six-month period while capital stock through capital raising totaled R78 billion. Bank capitalization is supportive of the industry’s growth trajectory. “And, banks are reasonably profitable with a return on equity of 10 percent,” Espenilla said.
With a capital adequacy ratio of 16 percent on consolidated basis which was more than 15.1 percent two quarters ago, the banking system has sufficient buffer for its liquidity requirement from a “level 1” high-quality liquid assets. “This is high quality, common equity Tier 1 capital support for our banking system,” Espenilla said.
All these numbers bring the domestic banking system in a “position of strength that will enable it to meet the funding requirement of a growing economy” while maintaining safeguards and buffers against risks, the BSP chief added.
For the first eight months, banks’ liquidity coverage ratio remains comfortably above the required 100 percent minimum. Also, loans-to-deposits ratio stood at 71.8 percent and liquid assetsto-deposits ratio at 50.26 percent.
In a statement, the BSP said “banks have refocused interest to lending activities and tempered trading activity in anticipation of rising interest rates.” Year-on-year, it added, the total loan portfolio expanded on a faster pace of 18 percent compared to growth in portfolio investments of 11.4 percent. “Given this, the quality of earnings improved with greater reliance on core revenues. The overall credit expansion remained broadly in line with the domestic growth momentum.” “While the financial system continues to operate in a position of strength, the BSP remains proactive in implementing financial sector reforms and enhancing its surveillance tools, thereby encouraging BSP-supervised financial institutions to build buffers against uncertainties in the global environment. This is in line with the BSP’s policy objective of promoting financial stability,” the BSP said.