Top PH banks’ profits up 42% in 9 months

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Profits of the country’s major banks rose significantly in the nine months to September as the industry ramped up lending to offset slimmer margins from low interest rates.

Data from the Bangko Sentral ng Pilipinas (BSP) showed profits of universal and commercial banks increased by 42 percent in the January to September period, driven mainly by growth in both interest and non-interest income.

The country’s 36 major banks booked combined profits of P114.39 billion at the end of the third quarter, higher than the P80.11 billion reported in the same period of 2012.

Net interest income—referring to money made from lending less the interest banks pay for their funds—reached P162.05 billion, an increase of just 8.5 percent year-on-year.

The modest growth in interest income was complemented by non-interest income, which refers to revenue from fee-based services and other revenue streams.

Major banks’ non-interest income reached P129.12 billion, up 33 percent from last year’s P96.88 billion.

Banks were able to rein in the growth of their expenses, as costs related to taxes, compensation and fringe benefits for employees, administration expenses and depreciation grew by just 6 percent to P163.21 billion.

The significant increase in profits for the country’s banks came amid thinner margins for the year due to the availability of excess liquidity in the economy and low government treasury yields, which banks use to price their loans to the public.

The BSP’s own overnight borrowing and lending rates, which help influence interest rates offered by banks, stand at record lows of 3.5 and 5.5 percent, respectively.

Metropolitan Bank & Trust Co. and China Banking Corp., the country’s second and fifth-largest banks, respectively, reported earlier this week that the increase in low-cost funds from current and savings account, or Casa funds, helped bring down interest expenses for local banks, offsetting lower interest rates.

The average net interest margin for the industry eased to 3.15 percent at the end of the third quarter from 3.38 percent in September of last year. Interest spreads were also lower at 3 percent from 3.19 percent the year before.

Due to lower interest rates, interest income of local banks relative to their total operating income slipped to 55.86 percent from 60.1 percent last year.

At the end of August, the country’s universal and commercial banks had P8.322 trillion in resources, comprising 89 percent of the local financial system, including investment companies and other non-bank financial firms.

Major banks, with 8,860 head offices and branches, also made up 92 percent of the industry’s physical reach at the end of June 2013.  However, major banks made up just 32 percent of the entire financial system.