Banks getting stronger — BSP

Philippine banks are fortifying with increassed capital but the Bangko Sentral ng Pilipinas has cautioned them against complacency amid the uncertainties in the global markets.

“Clearly, as we begin this new year, we are doing so from a position of strength. Nevertheless, because markets are interconnected and constantly evolving, we must not be complacent,” Bangko Sentral Governor Amando Tetangco Jr. said in his speech delivered at the Annual Reception for the Banking Community recently.

He said the banking system remained sound and stable and continued growing and remained profitable, creating the environment to sustain a strong external position, including a healthy gross international reserves level.

As of end-December 2013, the country’s GIR hit $84 billion, although lower than the earlier projection of $85 billion due to revaluation adjustments in the central bank’s gold holdings and settlement of foreign exchange obligations of the government.

The Bangko Sentral also expects banks’ balance sheet to improve despite the expected movements of interest rates this year and the tapering of the US Federal Reserve of its monetary stimulus program.

“We are quite comfortable with the things are. Even with the taper, they [banks] are stable,” Deputy Governor Nestor Espenilla Jr. told reporters in an interview.

He said some players in the industry would experience lower-than-projected income because of the movement of interest rates. But it does not have a bearing on the fundamental strength of banks.

Espenilla said banks’ main sources of revenues this year would continue to be credit, which is expected to grow strongly and profitable because asset quality is good.

“Debt losses is minimal… We always encourage banks to boost capital in good times,” Espenilla said.

The capitalization of universal and commercial banks as of end-June 2013 remained robust, with capital adequacy ratios at 17.98 percent on solo basis and 19.24 percent on consolidated basis.

The Bangko Sentral said the industry’s sustained strength resulted from the faster growth pace of qualifying capital vis-à-vis that of risk weighted assets.

“Despite the expansion in the industry’s total assets from P7.27trillion to P7.70 trillion, the industry’s RWA decreased by 0.12 percent on solo basis mainly due to the reduction in the risk weight/capital charge of Philippine sovereign issues denominated inforeign currencies from 100 percent to 50 percent,” the central bank said.

As of end-June 2013, the total number of universal and commercial banks in the country reached 5,330, with 96 branches were added from the recorded 5,234 in the second quarter last year.

Meanwhile, the gross non-performing loan ratio of universal and commercial banks remained low at end-October last year amid the rise in their total loan portfolio.

“The gross non-performing loan [NPL] ratio of universal and commercial banks stayed low at 2.56 percent of their total loan portfolio of P3.93 trillion at end-October last year,” the Bangko Sentral said.

“The banks kept their gross NPL ratio low amid a rise in U/KBs TLP which grew to P3.93 trillion in October last year from P3.49 trillion in the same period a year earlier,” it said.

The drop in gross NPL ratio was matched by an increase in U/KBs’ loan loss reserves for soured loans, which stood at 130.53 percent of NPLs in October 2013, up from the 126.23 percent posted in the same month in 2012. Provisioning for NPLs is a prudential measure for mitigating potential credit losses.

The Bangko Sentral said if all past due loans became NPLs, the gross NPL ratio would still be low at 2.81 percent in October 2013 compared with 3.22 percent registered during the same month in 2012.

“Bad debts across all sectors of the economy generally remained low and manageable as seen in financial intermediation, real estate, manufacturing, and wholesale and retail trade which all accounted for 62 percent of U/KBs TLP in October,” it said.

The banks’ low level of bad debts is an indication of the industry’s effort to adhere to prudent lending standards. This is essential to maintaining financial stability, which is a primary objective of the Bangko Sentral, the bank regulator said.

U/KBs in September last year kept their gross non-performing loans low at 2.6 percent of their total loan portfolio.

Universal and commercial banks posted P102.09 billion in NPLs in September, lower than the P103.42 billion recorded a year earlier. The banks’ total loan portfolio, meanwhile, increased to P3.92 trillion in September from P3.44 trillion during the same month last year.

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