The Philippine financial system continued to grow in the first half of this year, despite the challenges posed by rising inflation, rising interest rates and moderating economic growth, the latest central bank report on the banking system showed.
According to the Bangko Sentral ng Pilipinas (BSP), the banking industry “maintained its growth trajectory on the back of progressive implementation of financial sector reforms, sound governance and risk culture, as well as pursuit of financial innovation.”
“While there are lingering volatilities in the external macroeconomic environment, the country’s underlying fundamentals and continued investor confidence supported the steady growth of the domestic financial sector,” the report said.
According to the central bank, the banking system continued to account for about 82 percent of the total financial system’s total resources as of end-June 2018, and its total assets expanded by 10.3 percent from the previous year’s level.
“Banks’ prudent risk-taking behavior, sound corporate and risk management standards, investment in enabling and transformative financial innovation, and continuing commitment to pursue meaningful financial sector reforms all contributed to the steady growth and stability of the domestic financial system,” the report said.
Total resources were channeled mostly to loans (58.3 percent) and investments (22.1 percent).
Banks’ preference for interest-based revenues and longer-termed instruments were intended to rebalance portfolios, to ride out potential mark-to-market losses given higher interest rates, to hedge foreign exchange risks and to sustain a positive bottom line. Accordingly, core lending expanded further by 16.7 percent year-on-year.
“These loans were mostly allocated to key production sectors such as real estate, wholesale trade, manufacturing, household and utilities sectors,” the report said.
More importantly, the central bank noted that credit expansion was carried out with “prudent credit underwriting standards as there was no evidence of deterioration in the overall asset quality of the loan portfolio.”
Both the nonperforming loan and nonperforming asset ratios settled at 1.8 percent and 1.9 percent, respectively, as of end-June 2018 while their coverage ratios were recorded at 114.4 percent and 80.9 percent, respectively.