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Economic Contribution November 18, 2018

Big banks’ net profit up 9% as of Sept.

Big banks reported combined net profits of P116.07 billion as of end-September, up 9.23 percent from same time last year of P106.26 billion with increased loans to corporations and continued financial health overall.

Based on Bangko Sentral ng Pilipinas (BSP) data, these large lenders or the universal and commercial banks registered a 15.99 percent increase in net interest income of P314.18 billion from P270.86 billion.

Non-interest income also went up by 15.65 percent to P98.47 billion from P85.14 billion end-September 2017.

Central bank regulatory changes have been strengthening banks’ capital health while the growth also continued to get a boost from the double-digit expansion in bank loans and investments despite higher lending rates.

Big banks’ outstanding loans continued to post steady growth at 17.4 percent year-on-year as of end-September despite higher interest rate to temper elevated inflation. So far, the BSP had raised the interest rate on its overnight reverse repurchase by a total of 175 basis points (bps).

Such tightening of monetary policy and consequent increase in bank lending rates have contributed to the slowdown in growth of real estate and consumer loans. The 17.4 percent bank lending growth in September is slower compared to August’s 18.9 percent.

BSP Deputy Governor Maria Almasara Cyd N. Tuano-Amador said Thursday that they continued to view bank lending growth in a “healthy pace” in spite of the higher pass through rates.

BSP Deputy Governor Diwa C. Guinigundo, for his part, agreed that loan expansion – while slowing – is positive “in the sense that lending continue to increase net of RRPs (reverse repurchase placement with the BSP).”

The impact on interest rate pass through will be felt by next year yet as monetary policy action has a lag time of nine months.

After the 150 bps increase to its overnight RRP rate, bank lending rates, as well as overnight IBCL (interbank call loan) and the 91-day Treasury Bill rates increased more than 100 percent.

Overall, for the third quarter, the BSP reported that the entire banking sector’s total net profits increased by 6.61 percent to P129.95 billion from P121.88 billion in 2017. These includes thrift and rural banks.

In a recent BSP survey, it said banks are confident enough to have a bullish outlook over the next two years on the back of strong fundamentals, sufficient liquidity, capital buffers and sustained profits.

In its Banking Sector Outlook Survey (BSOS) maiden report, the BSP said banks are mindful and fully aware of internal and external risks that could potentially impact on their business, and that banks have strategies laid down to address these concerns and taking advantage of financial technology (fintech) to handle concerns.

Based on the new survey, banks are also aware that expanding client base, deepening of customer relationships, and developing new products are necessary to grow the bank.