BSP says banking system ‘sound and stable’

The country’s financial system as a whole remained “sound and stable” last year as the banking sector was awash with resources to sustain robust economic growth, according to the Bangko Sentral ng Pilipinas (BSP).

“As the BSP pursued sustained reforms with financial sector stakeholders, the banking system posted sufficient capitalization, improved asset quality and continued growth in assets, loans and deposit liabilities,” it said.

The BSP noted that universal and commercial banks’ current capital adequacy ratio of 14.9 percent indicated sufficient capitalization as banks’ expansion activities and operations as a whole impacted manageably on the industry’s total capital and profitability.

BSP data showed that the Philippine banking system’s net profit slightly declined by 0.2 percent to P134.6 billion in 2015 from P134.9 billion in 2014, but the BSP maintained that industry profit “was relatively stable despite tempered trading gains on the back of rising interest rates.”

The banking system also contained its year-on-year profit drop from the steeper 6.9 percent posted in 2014.

Last year, “funding remained largely sourced from retail and peso deposits of residents,” the BSP said.

Foreign currency deposit liabilities comprised 16.7 percent of total deposit liabilities. Banks were generally compliant with the required asset and liquid asset cover ratios of 100 percent and 30 percent, respectively, in 2015, it added.

As for the trust industry, the BSP noted that it posted a modest 0.3-percent year-on-year growth to P2.7 trillion on the back of increasing concentration and faster growth in financial assets, particularly corporate debt securities over equity investments.

Overall dollar-denominated assets propped up the expansion in trust assets, the BSP added.

Also, foreign bank branches and subsidiaries similarly ended 2015 with improved solvency, asset quality and liquidity, according to the BSP. “Profitability was maintained on higher interest income. The four new foreign bank branches and subsidiaries brought in fresh funds to the Philippine banking system when they commenced operations in 2015.”

Other non-bank financial institutions, meanwhile, exhibited prudence in their overall risk-taking activities and provided sufficient capital buffers for unforeseen shocks from their operating environment, such as rising interest rates last year, the BSP said.

In particular, non-bank financial institutions with quasi-banking functions (consisting of investment houses and finance corporations) reported positive net profit and sufficient capitalization with borrowings mostly in the form of deposit substitutes, it said.

Moving forward, the BSP said it “continues to bolster the banking system’s capabilities to address potential risks.”