With the country’s macroeconomic fundamentals remaining strong, the Philippine banking system had shown sustained growth in the first semester of this year, the Bangko Sentral ng Pilipinas (BSP) said in its enhanced report of the Philippine financial system for the same period.
“The Philippine financial system, with the banking system at its core, continues to provide financial intermediation to further boost the domestic economy,” the report said.
This growth, according to the report, is in addition to the proactive implementation of financial sector reforms, strong macroeconomic fundamentals and positive investor sentiment.
It said while the country’s local output or the gross domestic product (GDP) expanded year-on-year (YoY) by 6.3 percent, the banking system’s total assets expanded at a double digit rate which could be attributed to the upbeat bank lending funded by stable peso deposits.
“Gross value added of financial intermediation in the National Income Accounts rose by 8.7 percent mostly on account of the growth in banking institutions and non-bank financial intermediation at 9.8 percent and 9.7 percent, respectively,” the central bank explained.
As of end-June this year, the country’s banking system registered a significant growth of 10.3 percent YoY with P15.7 trillion in assets, accounting for the majority (95 percent) of the annualized nominal GDP in the same period.
By industry, universal and commercial banks dominated the volume of total assets with P14.28 trillion which then translates to a 10.9 percent YoY growth.
On the other hand, thrift, rural and cooperative banks listed 4.5 percent and 8.3 percent YoY growth respectively with P1.19 trillion for the former and P236 billion for the latter.
The report showcased a new section under the Financial Soundness of the Philippine Banking Sector and was based on the analysis of capital adequacy, asset quality, earnings, liquidity and sensitivity to market risk (CAELS).
The CAELS reported the BSP would remain wary to the possible risks in the system as the banking system remains stable.
Moreover, other improvements in the report include the insertion of two technical box articles on factors driving the behavior of deposit interest rates and impact of macro- and bank-specific factors on banks’ loan quality.
“These studies indicate that greater access to banking facilities, movement in BSP’s policy rates, better wages, improved weather conditions and size of aggregate bank deposit are significant drivers of the behavior of median deposit interest rates,” it explained.
According to the BSP, banks continue to be risk-sensitive in their loan lending behavior as loan quality sustained its stability amid macroeconomic shocks and positive credit growth.
“Overall, the double-digit year-on-year growth of the banking system’s assets, loans, investments, deposits, capital accounts and core income showcases resilience amid global volatilities and ensures another pillar to support the economy’s progress,” it said.
“While the banking system continues to expand its reach to extend credit to borrowers, prudent lending resulted to satisfactory asset quality with non-performing loan ratio at a low of 1.9 percent as of end-June 2018,” it added.
Meanwhile, the foreign currency deposit system, trust operations, quasi-banks and other non-bank financial institutions also registered steady growth contributing further to the strong performance of the financial system.
The BSP then reaffirmed its commitment to develop an enabling regulatory environment that will promote a stable and sound banking system that is globally competitive, dynamic and responsive to the evolving demands of economic development.