The greatest year for banking

During 2024, the Philippine banking system scored its best year.

And 2025 might prove even better for our beloved banks, even if only slightly, despite unprecedented geopolitical challenges of the worst trade war in 100 years, the highest tariffs in 100 years, the resurgence of imperialist America after 80 years and the sudden end of the 80-year-old trans-Atlantic security, economic and cultural alliance.

The Philippine economy is not as heavily dependent on foreign trade as its Asian neighbors. So it should be able to weather the turmoils triggered by Trump’s tempests and tantrums.

Our banking system is the region’s oldest. It used to be the biggest, at least in ASEAN.

Today, just one regional bank, Singapore’s DBS (assets: $555 billion), is bigger than the ENTIRE Philippine banking system which has total resources of just $424 billion.

Either our banks are overregulated, by our Bangko Sentral ng Pilipinas (BSP), or they are simply too timid to increase lending some more, deploy more deposits as loans and fund aggressively production of certain necessities like food, or both.

In December 2024, lending by Philippine banks was up, at double digit rate, 12.2 percent, more than double the economic growth rate. Bank lending growth in September was 14 percent.

A number of our banks scored record profits, making themselves literally billion-peso cash machines, enabling their owners, our country’s richest and best tycoons, to become astronomically richer.

In 2024, BDO reported record profits of P82 billion (the Henry Sy bank rakes in P6.83 billion in profits per month), up 12 percent over 2023; BPI, P62 billion (the Ayala bank mints P5.16 billion profits per month), up 19 percent; Metrobank P48.1 billion (the Ty bank hauls in P4 billion net per month), up 15 percent; Chinabank, P24.8 billion (Henry Sy’s second bank collars P2 billion net per month), up 13 percent; Union Bank, P12 billion (the Aboitiz family prints P1 billion profits per month), up 31 percent and Security Bank, P11.23 billion (P936.5 million per month), up 23 percent.

The entire banking industry made P290 billion in profits as of the third quarter last year, up 6.4 percent.

“The Philippine banking system maintains its solid performance, recording continued growth in assets, loans, deposits and earnings,” reported the BSP in a status report as of the third quarter 2024. Our banking system is as strong and resilient as ever.

“It has been a remarkable year,” gushed BSP Governor Eli Remolona, last January. He is rated one the world’s best central bankers.

“This growth momentum was accompanied with robust capital and liquidity positions that exceed domestic and global standards, enabling banks to support their expanding operations and risk-taking activities,” said the governor.

With inflation moderating, the BSP is expected to cut interest rates further, bringing them to an average of two percent, before the massive interest rate increases in the past two years that brought the BSP policy rate to a high of 6.25 percent.

The BSP’s interest rate increases, intended to tame inflation, instead cut GDP growth by one percentage point, resulted in business failures and prevented the employment of at least 500,000. Was the exercise worth it? Nah. People still complain about high prices.

Lower interest rates should result in more loan demand and improved non-performing loan ratios for banks.

In past years, annual loans growth was sluggish at five percent, or less. To support economic growth, banking lending growth should be double the GDP or economic growth rate. If GDP growth is six percent, then bank loans should rise 12 percent.

Growth in deposits up to September 2024 was 7.1 percent, to P19.6 trillion.

BSP reported domestic liquidity (M3 or money in circulation) grew by 7.7 percent year-on-year to P18.8 trillion in December, the same pace as in the previous month.

In early 2025, S&P (Global) upgraded our credit rating outlook. In March 2025, the country exited the grey list or watchlist of countries due to its anti-money laundering track record. Singapore is also a money laundering center.

Per BSP, banks’ loans for production activities rose 10.8 percent in December from 9.8 percent in November, “due largely to the sustained increase in lending to key industries such as wholesale and retail trade, repair of motor vehicles and motorcycles (10.1 percent); electricity, gas, steam and air-conditioning supply (14.2 percent); manufacturing (7.4 percent); financial and insurance activities (7.4 percent) and construction (12.6 percent).” Nothing about food?

Consumer loans were up 25.0 percent in December from 23.3 percent in November, due to the increase in credit card loans, salary-based general-purpose consumption loans and motor vehicle loans. How about food?

Banks have plenty of money. Bank deposits as of September 2024 totaled P19.6 trillion but loans reached only P15 trillion, despite the double-digit growth in lending. This means the system has P4.69 trillion of un-lent deposits.

The BSP aims to bring down the reserve requirement (the ratio of deposits parked with the BSP) to exactly zero, from five percent as of March 28, 2025. Every percentage-point reduction in the reserve requirement injects P150 billion into the system for lending. So a five percent drop is P750 billion freed into the system.

BSP reported domestic liquidity (M3) or money supply grew by 7.7 percent year-on-year to P18.8 trillion in December.

Our banks have nearly P5 trillion in excess or idle deposits. About P19 trillion circulate in the economy. Yet, 15.5 percent of Filipinos are poor and we are currently suffering from the gravest food shortage since the war.  What’s going on?

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I still get my weekly Economist magazines one to two weeks late. Cannot this magazine’s distributor in Manila be a bit more efficient – and honest? The distributor delivers two magazines good for two weeks – every Sunday (instead of Friday). Isn’t that cheating?

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Email: biznewsasia@gmail.com