Phl banks in pink of health

MANILA, Philippines - The country’s banks are in the pink of health and more than capable of raising capital for the Public-Private Partnership (PPP) program, bankers said.

Government has outlined 25 projects under the PPP program with a projected total cost of P520 billion.

Banco de Oro Unibank Inc. executive vice president and BDO Capital and Investment Corp. president Eduardo V. Francisco said that since project financing generally account for 70-percent of project cost (30-percent should be equity from stakeholders), then projects would need P360 billion in loans.

“That would be easy since each bank has a single borrowers limit (SBL), Philippine banks could lend total of P131 billion,” Francisco said.

Under the regulations of the Bangko Sentral ng Pilipinas (BSP), a bank can only lend a maximum of 25 percent of their capital to one borrower.

Recently, the BSP expanded the SBL as long as it is either an oil firm or a project that falls under the PPP projects.

Banks also have the ability to form syndicates so that they can tap the country’s capital markets.

Take note that the BSP-managed special deposit accounts (SDA) is already worth over P1.6 trillion.

“Sustained implementation of key financial sector reforms together with the improving macroeconomic environment augured well for the financial system during the year in review,” Amando V. Tetangco Jr., BSP Governor, said.

The country’s banking system reportedly control resources worth P7 trillion at the end of 2010. As expected, commercial and expanded commercial banks (also known as universal banks or unibanks) account for P6.3-trillion of the total resources of the system.

Then resources of thrift banks, also known as savings banks, are worth P589 billion while the rural banks account for the remaining P178 billion. Non-banks financial institutions reported resources worth P1.811 trillion.

Unibanks and commercial banks have total equity amounting to P654.4 billion, with assets worth P6.48 trillion; loans worth P2.75 trillion; and deposits worth P4.729 trillion.

The combined net income of the country’s banking system amounted to P91 billion last year, rising 31 percent from P69 billion the previous year.

The Philippine Deposit Insurance Corp. (PDIC) said that deposits rose to P411-billion in the first quarter of 2011.

“Bank deposits grew 8.9 percent in January to March,” newly-appointed PDIC president Valentin Araneta said. More than 47 percent of the accounts are savings deposits, 33.7 percent are time deposits, and 19.1 percent are checking accounts.

Banks make up 80 percent of the country’s financial system (for developed countries it is generally 50 percent), with unibanks and commercial banks accounting for 89 percent of all banks.

The top five banks (all unibanks and part of the country’s major conglomerates) account for two-thirds of total resources.

The capital adequacy ratios (CARs) of different bank categories continued to exceed the BSP’s minimum ratio of 10 percent and the Basel Accord’s standard ratio of 8 percent.  

The banking system registered average CARs of 16.02 percent on solo basis and 16.97 percent on a consolidated basis as of end-December 2010.

Similarly, the Tier 1 (T1) capital ratios of the banking system remained high at 13.64 percent and 13.69 percent on solo and consolidated bases, respectively.

Francisco said that some of the trends in financing structures is that deals are getting very big and no single financial institution can handle it anymore.

“Banks should develop long term funding to match long term assets they finance. Other banks should develop expertise to understand project finance, such as limited recourse cash flow based,” he added.

The BDO official said that sustainable growth means supporting not only the borrowers but also the depositors.

Banks must look at new ways to lend to companies (large companies, SMEs and even microfinance) from asset-based to cash flow-based lending.

That would also include developing new investment and deposit products to attract more depositors and “incentivize” depositors (especially overseas Filipino workers) to invest.

Fitch Rating Agency recently gave a “stable outlook” to Philippine banks, citing that the banks’ credit fundamentals will remain intact amid generally sound domestic economic conditions.

Meanwhile, Standard & Poor’s (S&P) said that Asia’s banking industry has weathered the financial crisis in good shape. The rating agency has a stable outlook on 37 of the region’s 40 biggest banks.

But it said that Asia’s banks would not see smooth sailing for banks in Asia-Pacific.

Low interest rates are making it tough to earn decent margins, while over-heating property markets are increasing the risk of a damaging correction and a wave of defaults.