BSP says banking system remains stable

BSP says banking system remains stable

BY JIMMY CALAPATI

DESPITE the impending risks brought by the latest financial crisis in the US and Europe, the Bangko Sentral ng Pilipinas (BSP) said that the country’s banking system remained stable "as banks continued to adhere to banking rules and regulations set by the BSP."

For the first four months of the year, the central bank said that lending, deposits, and profitability of the local banks sustained their healthy growth.

"Credit quality in the system also continued to improve, with banks posting lower non-performing loans (NPL) and higher loan-loss provisioning ratios," BSP said.

In its latest report, BSP said that savings and time deposits remained the primary sources of funds for banks as banks’ total deposits as of end-April 2011 reached P3.7 trillion, 8.5 percent higher than the year-ago level of P3.4 trillion.

"The continued growth in deposits reflected sustained depositor confidence in the banking system," BSP said.

Savings deposits registered a 10.8 percent growth and continued to account for nearly half of the funding base while demand deposits expanded 12.9 percent year on year. Time deposits posted a moderate growth of 1.3 percent.

The central bank also said that the total resources of the banking system had risen 8.4 percent to P7 trillion as of end-April 2011, adding that the "increase could be traced to the growth in currency and deposits, indicative of the public’s continued trust in the banking sector."

Universal and commercial banks accounted for the bulk, almost 90 percent of the total resources of the banking system.

The report also showed that the banking system’s asset quality further improved as the NPL ratio declined to 3.7 percent as of end-April 2011 from 4.0 percent registered a year ago.

The central bank said that banks’ continued adoption of prudent lending standards helped minimize the incidence of problem loans.

The low NPL ratio was maintained as the 10.0 percent expansion in the industry’s total loan portfolio outpaced the 1 percent growth in NPLs.

The total loan portfolio had expanded to P3.3 trillion as of end-April 2011 from P3 trillion during the same period last year, while the NPL level had grown to P121.6 billion during the period from the previous year’s P120.5 billion.

The NPL ratio of universal and commercial banks had dropped further to 2.9 percent as of end-April 2011 from the 3.3 percent posted in the same period in 2010, but was broadly unchanged relative to the ratio posted at end-December 2010.

The Philippine banking system’s NPL ratio of 3.7 percent was higher compared with the NPL of neighboring countries, like Indonesia’s 2.8 percent, Malaysia’s 2.1 percent and Korea’s 2.3 percent, but lower than Thailand’s 3.9 percent.

The BSP explained that the lower NPL ratios of Malaysia and Korea could be attributed to the creation of publicly-owned asset management companies (AMCs), which bought the bulk of their NPLs, a practice not implemented in the Philippines.

Also, the loan exposure of banks remained adequately covered as the banking system’s NPL coverage ratio had improved to 98.9 percent as of end-April 2011 from 92.1 percent in the preceding year.

The ratio was indicative of banks’ continued compliance with the loan-loss provisioning requirements of the BSP to ensure adequate buffers against unexpected losses.

Meanwhile, the average capital adequacy ratio (CAR) of the banking system had risen to 16.0 percent on a solo basis and 17 percent on a consolidated basis as of end-September 2010 compared with the quarter-ago ratios of 15.2 percent and 16.2 percent, respectively, resulting from the growth in qualifying capital due mainly to the robust net profits reported by banks and issuances of capital instruments during the period.

The industry’s CAR continued to exceed both the statutory levels set by the BSP and the BIS at 10 percent and 8 percent, respectively.

The Philippine banking system’s CAR remained slightly higher than those of Malaysia (14.5 percent), Korea (14.6 percent) and Thailand (16.4 percent).

Indonesia posted the highest CAR in the region at 17.6 percent.

As of end-March, the number of banking institutions (head offices) had fallen further to 746 from the quarter and year ago levels of 758 and 779, respectively, "reflective of the continued consolidation of banks as well as the exit of weaker players in the banking system."

By banking classification, banks (head offices) consisted of 38 universal and commercial banks, 73 thrift banks, and 635 rural banks.

Meanwhile, the operating network (including branches) of the banking system increased to 8,870 in the first quarter of 2011 from 8,869 in the fourth quarter of 2010 and 8,663 during the same period last year, due mainly to the increase in the number of branches/agencies of commercial and rural banks.

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