BSP: Philippine banks poised for growth

MANILA, Philippines — The country’s banking industry is expected to sustain its growth momentum over the coming years, driven by strong reforms and support from the Bangko Sentral ng Pilipinas (BSP).

In its latest report on the Philippine Financial System, the BSP said the robust performance of the sector in the first semester was mainly due to sustained growth in assets, loans, deposits and earnings along with strong capital and liquidity positions.

The strong growth of banks was also on the back of an improved macroeconomic environment and the central bank’s steady pursuit of progressive financial sector reforms.

“Banks remain the pillar of the Philippine financial system,” BSP Governor Eli Remolona, Jr. said in a statement.

“The BSP’s financial reforms help sustain the resilience of the banking sector, enabling banks to take a bigger role in the domestic economy through continued financial services to their clients, ultimately improving the financial future of every Filipino,” he added.

According to the report, the share of the banking sector to the financial system’s total resources increased further to 83.4 percent as of end-June.

The total assets of the banking system rose by 12.4 percent to P26.2 trillion, largely funded by domestic deposits and channeled mostly to lending and investment activities.

“Prudent credit management and sound corporate governance supported by adequate capital and liquidity buffers, likewise, helped banks in maintaining their resilience, providing cushion against potential shocks arising from the prolonged high interest rate environment and inflationary pressures,” the BSP said.

Banks’ loan portfolio rose by 12.4 percent to P14.3 trillion in the first half mainly due to improving macroeconomic fundamentals as well as strong consumer and business confidence.

The robust credit growth also highlighted the lenders’ role in the continued growth and development of the economy, the BSP said. The ratio of banks’ credit-to-gross domestic product improved to 56.4 percent in June from 54.9 percent a year ago.

The banking industry also maintained good loan quality despite the pick-up in non-performing loans. The total NPLs of the sector grew by 14.8 percent to P502.4 billion. This brought the NPL ratio to 3.5 percent in June from 3.4 percent in the same month last year.

Banks responded by raising the allowance for credit losses by 7.7 percent to P34.4 billion, which led to an NPL coverage ratio of 95.4 percent over the same period.

“Notwithstanding this, banks continued to implement sound credit management practices, supported by robust strategies and precautionary measures to mitigate the increase in credit risk,” the BSP said.

“Easing market conditions and moderation of inflationary pressures are seen to provide relief and improve bank borrowers’ repayment capacity, thus, enabling banks to maintain low NPLs and NPL ratio.”

Bank earnings also inched up  by 4.1 percent to P190.3 billion as of end-June, driven by interest income from lending activities particularly loans to private corporations and households.

The number of bank offices also went up to 13,367 in June from 13,335 in June 2023, making banking services accessible to more Filipinos.