Sustained profitability seen for Philippine banks

MANILA, Philippines — Philippine banks are expected to sustain their profitability despite the slower economic growth brought about by external and domestic headwinds, according to S&P Global Ratings.

Nikita Anand, associate director at S&P, said the earnings of Philippine banks would continue to improve after the pandemic.

Anand said the return on average assets of the Philippines banks would be sustained at around 1.4 percent in 2024 and 2025 from the projected 1.5 percent  for this year.

She said that credit losses of Philippine banks are expected to remain flattish at 0.6 percent of total loans in 2024 and 2025 from the projected 0.6 percent for this year.

The credit losses of banks operating in the Philippines, she said, exceeded two percent of total loans in 2020 due to the impact of the global health pandemic.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the earnings of Philippine banks jumped by 27.7 percent to P182.76 billion in the first half from P143.12 billion in the same period last year as the industry’s non-performing loan (NPL) ratio improved.

During the six-month period, the industry’s total operating income went up by 17.2 percent to P552.44 billion from P471.32 billion, as net interest income surged by almost 24 percent to P437.84 billion from P354.32 billion.

The BSP has raised key policy rates by a cumulative 425 basis points since May last year to bring the benchmark interest rate to a 16-year high of 6.25 percent from an all-time low of two percent to tame inflation and stabilize the peso.

Amid the inflation downtrend and stable local currency, the central bank extended its prudent pause, keeping interest rates on hold in May, June, August, and September.

Data showed that the industry’s provision for credit losses on loans and other financial assets declined by 12.3 percent to P40.02 billion from P45.65 billion, while soured loans written off plunged by 83.9 percent to P292.62 million from P1.81 billion.

Last year, the earnings of Philippine banks jumped by 38 to hit an all-time high of P310.12 billion from P224.75 billion in 2021. This erased the previous record high of P230.67 billion that was posted before the pandemic hit in 2019. 

Anand said the strong household deposit base would continue to provide a stable funding profit for Philippine banks.

She added that banks operating in the Philippines also maintain good capital buffers that are above the threshold imposed by the central bank.