Banks’ profits seen to shrink

LOCAL banks’ profit growth is expected to be muted this year as companies continue to struggle with rising rates resulting in trading losses, according to credit-rating firm Standard & Poor’s (S&P).

Returns on assets may improve slightly but would still fall short of 2013’s peak. Most local banks this year have shifted their focus to growing their consumer loan books to help arrest the losses, but S&P said it might take awhile before full effects were felt.

“Profitability will be subdued. Consumer loans can compensate for lower trading gains we’re expecting this year,” S&P Financial Institutions Ratings director Ivan Tan said in a webcast late Friday.

He said most Philippine banks still had large holdings of government securities available for trading, which make these securities susceptible to interest rate fluctuations in the market. As a result, many banks can still expect losses in their trading books.

For 2015, S&P said it expected the industry to post an average return on assets (ROA) of 1.2 percent, down from 1.3 percent last year and from 2013’s peak of 1.6 percent. At the end of 2014, the combined net income of the country’s major banks stood at P121.66 billion, down 8.17 percent year-on-year, data from the Bangko Sentral ng Pilipinas (BSP) showed.

An industry-wide refocusing on retail banking, to complement the local sector’s traditionally strong commercial lending portfolio, might help prop up profits, Tan said.

However, higher delinquency rates in consumer credit such as car loans, mortgages and credit cards might slow down the growth of retail portfolios in the industry.

“Consumer delinquency is higher than the banking system as a whole,” Tan said, noting that nonperforming consumer loans in the Philippines averaged at close to 5 percent, based to regulatory data. This compares to the ratio of nonperforming loans (NPL) to the entire loan portfolio of under 2 percent.