June 23, 2018, 10:31 am
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Buildup of buffers continues

The Philippine financial system’s continued buildup of buffers amid sustained loan growth in the first half of 2017 further strengthens the overall stability of the system.  Banks have maintained satisfactory asset quality, adequate provisioning, capital buffers and ample liquidity to serve as early defenses against external shocks. 

The non-performing loan (NPL) ratio of the banking system is declining settling at 1.9 percent from 2.2 percent a year ago. Further, banks continued to set aside additional allowance for credit losses amounting to P11.6 billion resulting in improved NPL coverage ratio of 114.2 percent.  During the first semester of 2017, the level of capital stock was augmented by P78.0 billion from capital raising activities and profitable operations from core lending activities with net income of P81.3 billion.  This resulted in higher capital adequacy ratio (CAR) of 16.0 percent on consolidated basis from 15.1 percent as of end-2016. 

The banking system has sufficient buffer to meet liquidity needs in the form of level 1 high quality liquid assets. Banks’ liquidity coverage ratio (LCR) is comfortably above the required 100 percent minimum. Moreover, loans-to-deposits ratio and liquid assets-to-deposits ratio stood at 72.8 percent and 50.4 percent, respectively.

Banks have refocused interest to lending activities and tempered trading activity in anticipation of rising interest rates. Year-on-year, total loan portfolio expanded on a faster pace of 18.0 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.   

The overall financial condition and earnings performance of the non-bank financial institutions supervised by the BSP remained satisfactory supported by sustained loan expansion and profitable operations.  Capitalization remained sufficient to support the industry’s growth prospects.

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.
 
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