PHL banking system grows amid market uncertainties – BSP

The Philippine financial system managed to weather negative developments here and abroad, the Bangko Sentral ng Pilipinas (BSP) said, citing how the banking sector was able to expand in the second half of the year.

"The Philippine financial system, supported by the strong performance of the banking system, remains in a position of strength in the first half amid structural shifts in the global and domestic financial landscape," the central bank said in a report Wednesday.

The resources of the banking sector, which accounted for over 80.8 percent of the financial system, totaled P11.202 trillion or 9 percent more than the P10.28 trillion registered a year earlier.

"Assets shifted and reflected banks' risk-taking activities to maximize returns following the double-digit expansion, albeit slower, in the investment and loan portfolios vis-a-vis the contraction in cash-and-due from banks," the BSP said.

The Philippine financial system survived the turbulence from speculations about the timing of the US interest rate hike and concerns over the slowing Chinese economy, Bank of the Philippine Islands associate economist Nicholas Antonio Mapa told GMA News Online.

"We saw increased episodes of market volatility with China's stock exchange entering a Panda Bear market phase while expectations for a Fed rate hike pushed the dollar to strengthen against emerging market currencies," he added.

The Philippines was buttressed by solid macroeconomic fundamentals owed to robust consumption driven by remittances from overseas Filipinos, the business process outsourcing (BPO) industry and generally healthy economic activity, the economist said.

The low inflation environment also provided an additional boost to consumption while relatively low lending rates helped spur investments, he added.

'Funding profile'

Investments increased by 13.3 percent to P2.389 trillion from P2.109 trillion while loans rose by 12.9 percent to P5.017 trillion from P5.214 trillion, according to central bank data.  Cash-and-due from banks, meanwhile, dropped by 2.5 percent to P2.353 trillion from P2.413 trillion. 

"Funding profile remained stable with retail and domestic-oriented deposit liabilities continue to be the main source of funds," the central bank said.

Deposits grew by 9 percent year-on-year to P8.610 trillion from P7.901 trillion as of end-June. The expansion compares with the 18.3 percent positive change recorded in 2013, as banks offered more alternative investment products with better rates.

"Banks' more upbeat stance towards loan and investment portfolio expansions proved beneficial as net profit grew by 8.1 percent to P68.9 billion from P63.7 billion," the central bank noted.

The higher profit reflected the strong revenue performance of the banking system. Trading income, in particular, expanded by 35.9 percent on favorable market sentiment during the first half, according to the BSP.

"Nevertheless, structural shifts in the global arena such as the gradual economic recovery and growth slowdown in many emerging market economies pose some near term risks of increased financial market volatility and lower growth output," the BSP said.

Sizeable reserves

In the second half, the surprise currency devaluation and stock market rout in China along with the possible move of the US Federal Reserve to hike interest rates in December will develop a downward pressure.

But the country's sizable reserves reassure investors of ample onshore currency liquidity, helped by overseas Filipino remittances and the BPO sector, Mapa said.

"The reserves helped the Philippines weather bouts of financial markets stress and kept the peso a tad bit better than peers, which struggled to steady their currencies without having to draw down heavily on reserves," he added.

The changing global remittance policies and de-risking may also have implications on the growth of banks' balance sheets and overall profitability, according to the BSP.

"Risks arising from ever changing market conditions and emerging regulatory architecture could signal sharp turns and pressure points that may warrant careful monitoring, proactive supervisory response and calibrated reform implementation," the central bank noted.

The BSP supervises 638 banks with 9,890 branches as of end-June. Of the total, 268 offer various e-banking services such as electronic wallets, remittance products and mobile banking. – VS, GMA News