Continuing reforms in the banking sector have led to a domestic financial system that remained “sound and stable” in the first half, the Bangko Sentral ng Pilipinas said Tuesday.
“With the banking system at its core, the financial system continued to provide needed funding to a growing economy” during the first semester, the BSP said in a statement.
The Philippine economy grew by 6.9 percent in the first half, among the fastest in the region.
The BSP noted that from January to June, it had put in place additional Basel Ill reforms that would improve the banks’ liquidity standards, mitigate systemic risks through the recovery plan on domestic systemically important banks (DSIBs), enhance risk management oversight and corporate governance standards, as well as strengthen prudential rules on connected lending and related party transactions.
As a result of sustained introduction of reforms, the BSP said the banking system had seen its asset grow by 12.2 percent to P12.5 trillion in the first half, coupled with double-digit expansion in credit.
“Banks also maintained an improved loan quality of 2.2 percent, positive bottom line of P78.9 billion and capital adequacy ratio (CAR) of 16.1 percent” during the first semester, the BSP added.
As the government wanted to temper risks by mostly tapping local borrowings, “funding remained largely sourced from retail and peso deposits of residents,” the BSP pointed out.
“Meanwhile, foreign currency deposit liabilities comprised 21.6 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,” it added.
At the end of the first half, the trust industry’s total resources reached P2.8 trillion which, the BSP noted, was closer to the P3 trillion posted at the end of June 2013, the peak during the five-year review period under Memorandum No. M-2013-021, which constrained access of trust accounts to the BSP’s special deposit account (SDA) facility.
The memorandum allowed access only for unit investment trust funds (UITF), which the BSP said “led to the shift to deposit in banks and investments in financial assets from cash and due from BSP, which boosted the asset expansion.”
Also, “other non-bank financial institutions similarly exhibited prudence in their overall risk-taking activities and provided sufficient capital buffer against unforeseen shocks from their operating environment, such as rising interest rates,” the BSP added.
“Notwithstanding the sustained positive performance of the financial system, the BSP continues to carefully monitor potential sources of vulnerabilities and implement timely and calibrated reforms address potential risks. This is in line with the BSP’s objective of promoting greater financial stability,” it said.