Banking system remains in pink of health

Manila, Philippines - The country’s banking system, comprised of commercial, thrift and rural banks, is in the pink of health. In the first three months of 2012, most banks reported profits ranging from modest growth to record levels.

Bankers themselves have forecast that their first semester numbers will be impressive even with a slower second quarter compared to the first three months of the year.

 The commercial banking sector, which accounts for 96.3 percent of total resources of the country’s banking system, is leading the industry’s expansion.

Bankers Association of the Philippines (BAP) president Alberto S. Villarosa describes the state of the commercial banking sector as in its “best, fittest, and strongest form.”

“No other time in its brief history can we find the country’s commercial banking system in its best, fittest and strongest form, in terms of earnings, balance sheet, risk management, and capital adequacy ratio,” Villarosa, who is also president and chief executive officer of Security Banking Corp., said.

The BAP is the trade organization of the country’s commercial banking sector.

Over the past three to four years, majority of the commercial banks have been busy raising capital to cope with the demands of the robust economy as well as ensure compliance with banking regulations, both domestic and global.

Most glaring is the extensive risk weighting, management systems and capital buildup required by the international Basel Conventions, an offshoot of the financial crises in 1997 and 2008. The latest regulatory framework known as Basel II and III are presently being adapted by the country’s banking system.

The BAP president said the concern today is not capital or access to it, but complacency.

“The greatest danger right now is complacency. One does not think of repairing the ship when it has started to sink,” Villarosa said.

He said that it is now the right time to start reviewing and studying the possible worst case scenarios “when we are at our strongest.”

 “It is the right time to prepare for an eventuality. We should be preparing for any possible head winds,” the BAP president cautioned, pointing out how the country’s banking system weathered the Lehman Brother-led financial crisis in 2008.

For the commercial banking sector, the BAP has established three layers of risk management to ensure a high level of risk management. It has the committees on the capital markets, the open market, and the BAP risk management committee.

“We are spending time and money to ensure we remain healthy as well as serve the demands of the market,” the BAP president added.

For the rural banking system, the challenges are different.

Newly-installed Rural Bankers Association of the Philippines (RBAP) president Edward Leandro Z. Garcia Jr. is calling for further cooperation among the rural bankers.

 “We also have to address our image problem brought about by bank failures and unwanted media coverage of rural banks, by making known what so far we have achieved, by highlighting the gains of our sector rather than its failures, and by showing the world of our special role in financial inclusion efforts,” Garcia said.

 “In other words, we want to get our message across: Rural banks provide more that P110 billion of financing support to our farmers, fisher folk, micro, small and medium enterprises, overseas Filipino, businessmen, and others throughout the countryside, will you help us achieve the next P100 billion?”

The number of banks currently stands at 739, slightly down from 758 last year. The BSP attributed the decline in the number of banks in the first half of the year to the exit of weak players in the banking system as well as the continued mergers and consolidation of major players.

The number of commercial banks was steady at 38 and thrift banks at 72. Rural banks dropped to 629 in the first six months of the year compared to 661 in the same period last year and 647 as of end-December due primarily to the closure of weaker banks.