Banks expect higher profits this year

Local banks are expected to post higher profits this year after going through tough changes last year that put them in a better position to earn more off their traditional income streams.

Bankers Association of the Philippines (BAP) president Lorenzo V. Tan said the absence of trading gains last year forced industry players to focus more on growing their loan portfolios.

“[Quantitative easing] reversal made banks focus more on core banking,” said Tan, who heads mid-sized Yuchengco-owned Rizal Commercial Banking Corp (RCBC).

Last year, trading gains of banks were virtually wiped out due to volatility in interest rates. This was a result of the US Federal Reserve’s decision to gradually reduce and eventually end its monetary stimulus for the American economy.

The US Fed’s billions of dollars of monthly asset purchases came to an end in December, after a run that lasted five years.

As a result, Tan said banks decided to lend more to small and medium enterprises (SMEs) and consumers, sectors where demand for credit was strong and yields were relatively higher. Fee-based banking also made strong gains, he said.

“Banks will do well in 2015, with varying degrees of profitability. Net profits will be better,” he said. He issued a caveat, however, saying that fresh bouts of volatility in capital markets might weigh on profits yet again. After ending its bond-buying program last year, the Fed is expected to raise interest rates in the US later this year.

“I can’t predict fear; that’s hard to quantify,” he said.

Profits of the country’s biggest 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. Paolo G. Montecillo