Commercial bank earnings jump 23.5% in H1

MANILA, Philippines - Earnings of universal and commercial banks operating in the Philippines jumped 23.5 percent in the first semester of the year despite economic growth concerns in advanced economies led by the US as well as the sovereign debt problems in Europe, data released by the Bangko Sentral ng Pilipinas (BSP) over the weekend showed.

The BSP data showed that the net income of the country’s universal and commercial banking industry reached P37.604 billion from January to June this year, P8.774 billion higher than the P37.694 billion booked in the same period last year.

BSP Governor Amando Tetangco Jr. said in an interview that universal and commercial banks managed to post strong profitability in the first half of the year amid the concerns in the US and Europe.

“I think it is a reflection of the continuing good overall performance of the banking system and this is made more significant because it is happening at a time when there are important or significant problems that are being faced by the countries in the West,” Tetangco stressed.

He pointed out that banks operating in the country are stable and sound enough to survive the impact of the crisis in the US and Europe.

“This shows that our banks continue to be stable and continue to operate on a sound basis. In fact the increase in profitability in the first half shows that they can weather the impact of external crisis,” the BSP chief explained.

The higher earnings of universal and commercial banks could be traced to the 3.02 percent rise in interest income to P141.99 billion in the first six months of the year from P137.82 billion in the same period last year, while interest expense retreated 2.3 percent to P45.89 billion from P46.97 billion.

Statistics showed that the non-interest income of universal and commercial banks rose 16.6 percent to P56.79 billion from P48.66 billion on the back of higher fees and commissions income, gains on financial assets and liabilities held for trading, gains from sale of non-trading financial assets and liabilities, among others.

Due to the continued strengthening of the peso against the dollar, the central bank data showed that universal and commercial banks booked foreign exchange gains amounting to P7.96 billion in the first half of the year, reversing foreign exchange losses that amounted to P928 million in the same period last year.

Statistics showed that non-interest expenses for compensation and fringe benefits, taxes and licenses, fees and commissions, and other administrative expenses went up 8.97 percent to P96.04 billion in the first half of the year from P88.13 billion in the same period last year.

The universal and commercial banking industry posted a return on equity of 13.3 percent in the first half of the year from 11.77 percent in the same period last year as well as a return on asset of 1.56 percent from 1.33 percent.

The earnings of universal and commercial banks surged 31 percent to P83.36 billion last year from P63.72 billion in 2009 despite booking foreign exchange losses amounting to P5.87 billion as 2010 emerged as a banner year for the country’s banking industry on the back of higher interest and non-interest income,

The total number of banks operating in the Philippines was reduced by 33 to 746 in the first quarter of the year from 779 in the same quarter last year as the bank regulator stepped up its campaign against problematic banks while major players in the banking industry continued to consolidate.

Data showed that the number of universal and commercial banks was steady at 38 while the number of thrift banks was also unchanged at 73. However, the number of rural banks decreased to 635 in the first three months of the year compared to 667 in the same period last year and 647 as of end-December due primarily to the closure of weaker banks.

Monetary authorities said 2010 was a banner year for Philippine banks contributing largely to the country’s stronger-than-expected economic growth amid the fragile recovery in advanced economies led by the US as well as the debt crisis in Europe.

The BSP said banks operating in the Philippines are adequately capitalized, exceeding the 10 percent capital adequacy ratio (CAR) of the BSP and the eight percent international standard under the Basel Accord.

Latest data showed that CAR of the banking system remained healthy at 16.02 percent on solo basis and 16.97 percent on a consolidated basis as of end-December 2010. Similarly, the Tier 1 capital ratios of the banking system remained high at 13.64 percent on a solo basis and 13.69 percent on a consolidated basis.

The banking system’s CARs hardly moved from the last quarter’s 16.04 percent on a solo basis and 16.97 percent on a consolidated basis.

The CAR is a ratio of a bank’s capital to its risk and the central bank tracks this indicator to ensure that banks have the capability to absorb a reasonable amount of loss and that they are complying with their statutory capital requirements.