Bangko Sentral ng Pilipinas. INQUIRER.net FILE PHOTO
MANILA, Philippines—Profits of the country’s largest banks declined last year as the cost of money went up and stricter regulations that called for higher capital buffers took effect, data released by the central bank showed.
In a report, the Bangko Sentral ng Pilipinas (BSP) said the country’s 36 universal and commercial banks saw interest margins slim. Although this was slightly offset by lower funding costs, total yields still fell, leading to an industry-wide decline in return on equity.
At the end of 2014, the combined net income of the country’s major banks’ stood at P121.66 billion, 8.17 percent down year-on-year.
Net interest income in 2014 rose to P261.75 billion, higher by 17 percent from P223.19 billion in 2013. However, non-interest income took a dive to P127.49 billion from P152.83 billion, while non-interest expense rose to P238.99 billion from P223.49 billion.
The BSP said the banks’ net interest margin declined by two-tenths of a percent to 2.99 percent from 3.01 percent.
At the end of 2014, banks’ return on equity remained at a healthy 10.96 percent, but this was lower than the previous year’s 13.65 percent.
Declining earnings for banks last year came as stiffer capital requirements—part of the new international conventions in response to the 2008 financial crisis—took effect. Lenders were required to set aside more money as buffer for potential losses.
Last year was also defined with interest rates that started to creep up from previous record lows, a result of rate hikes by the BSP meant to curb rising inflation.
The BSP raised its benchmark overnight borrowing and lending rates by half a percentage point to 4 and 6 percent, respectively. Apart from being part of efforts to curb inflation, the rate hikes were also done in anticipation of the US Federal Reserve’s expected policy normalization later this year.
As part of efforts to manage the country’s money supply, banks were also ordered to set aside more of their clients’ deposits as reserves, effectively cutting the amount of cash that was available for lending and investments.