Philippine banks posted a combined P25.1 billion in net income in the first half of the year despite the crisis gripping the global financial system, down 26 percent from P33.7 billion in the same period last year, according to a central bank report released Tuesday.

The “Status Report on the Philippine Financial System” showed that rising interest rates, a weakening peso and risk aversion affected income from treasury operations of banks, dragging down their profitability.

Nonetheless, “the Philippine financial system continued to stand on solid fundamentals in the first half 2008, key performance indicators showed the sustained strength of banks’ core balance sheet accounts,” the report said.

The capital adequacy ratio—an indicator of capability to cover possible losses, especially from lending activities—was 15.5 percent, compared with the minimum requirement of 10 percent set by the central bank.

The report also said bank lending grew 25.1 percent in the first half, the highest expansion rate since the 1997 Asian financial crisis. The biggest borrowers were the manufacturing, real estate and automobile industries, it said.

“Local banks appear to be positioned well to deal with the challenging external (i.e., subprime crisis) and internal (rising interest rates and volatile prices) environment,” the report said.

The report also showed banks’ return on assets dropped to 1.1 percent from 1.3 percent in the first half of last year, the return on equity fell to 9.6 percent from 11.7 percent, and growth in deposits dropped to 3.9 percent from 13.9 percent. Michelle V. Remo; edited by INQUIRER.net