WEDNESDAY NOVEMBER 04, 2009 PHILIPPINES

Banking system’s H1 income up 32%

BY JIMMY CALAPATI

The Philippine banking system’s posted a hefty 32.6 percent growth in net income during the first half of the year despite of the global financial crisis that drove some countries into recession and some global financial institutions into bankruptcy.

In a report, the Bangko Sentral ng Pilipinas (BSP) said the country’s bank turned in a combined profit of P33.3 billion during the first half, against P25.1 in the same period last year.

As a result, there was a notable strengthening of major profitability ratios. The annualized earning asset yield stood at 7.9 percent, 27 basis points higher than the 7.7 percent ratio posted same period last year.

Other annualized profitability ratios primarily showed sustained resilience: net interest margin at 4.7 percent (from 4.2 percent), return on assets at 0.9 percent (from 1.1 percent) and return on equity at 8.1 percent (from 9.6 percent).

The central bank said the performance for the first semester of 2009 "offered a silver lining from the dark clouds of the tempestuous financial storm that rocked the global financial system in 2008."

During the first half of last year, the income of the country’s banks went down by 25.4 percent. For the whole year, income stood at P41.5 billion, lower by 34 percent from 2007’s P62.9 billion.

According to the BSP, banks’ key balance sheet accounts registered respectable growths despite the challenging operating environment.

The system was able to sustain positive net profit despite the slump in treasury-related activities due to substantial foreign exchange revaluation.

During the semester in review, BSP said banks provided "higher provisions for credit losses, plowed back undivided profits to further strengthen their capital base and achieved greater efficiency in their operations on account of greater maximization of e-banking technologies."

"Loan growth remained in double-digit level as banks were forced to re-evaluate their asset portfolios in line with the growing risk aversion at the onset of subprime credit crisis and public burnout from structured products in advanced economies," BSP said.

Outside financial intermediation and the interbank market, BSP said that the Top 3 loan destinations were real estate, manufacturing and agriculture related sectors.

During the review period, asset and loan quality improved much closer to their pre-crisis levels of around four percent on account of banks’ commitment to asset cleanup and general improvement in credit underwriting standards of banks.

Also, BSP noted that deposit liabilities posted a robust 13.4 percent growth year-on-year due to heightened saver’s weariness on other investment products, greater financial access and banks’ aggressive marketing of various deposit products during the semester in review.

The bulk of these deposits were in peso and short-term demand, negotiable orders of withdrawal and savings accounts in response to increasing interest rates and general weakening of the US dollar against the peso.

The central bank also said that while the bulk of banks’ major investment portfolio was in debt securities, these were mostly placed in risk-free government securities.

There was also ample liquidity in the system as liquid assets-to-deposits ratio slightly strengthened to 51.8 percent from 51.6 percent a year ago.

Finally, banks remained solvent during the semester in review as capital adequacy ratio (CAR) was above regulatory and international standards at 15.3 percent on a consolidated basis.

"Banks’ compliance ratio with minimum capital improved for all banking groups led by universal banks," BSP said.

As of end-June 2009, the central bank also noted there was a notable streamlining of the banking system’s overall physical structure but bank density remained skewed towards highly populous and urbanized areas of the archipelago.

In response to this challenge, advancements in mobile banking technology promoted financial inclusiveness to far-flung rural communities where establishment of bank branches may be physically challenging if not, economically unviable.

As of end-June 2009, BSP said that there were 804 banks with 7,094 branches operating in the Philippines.