Philippine banking sector stayed healthy in 1st half

The country’s banking sector remained financially sound in the first half of the year as it was able to withstand the ill effects of the ongoing financial turmoil in Europe.

In its latest “Status Report on the Philippine Financial System,” the Bangko Sentral ng Pilipinas (BSP) said that banks in the country posted encouraging indicators in the first semester.

The BSP said Philippine banks were able to sustain growth for more than a decade now due to regulatory reforms, as well as enhancements in lending and other business practices carried out since the Asian financial crisis of the late 1990s.

“Key performance indicators for the first half of 2011 showed the sustained strength of banks’ core balance sheet accounts: steady asset expansion, double-digit credit growth, stable funding base, ample liquidity, continuing improvement in overall asset quality, above-standard solvency ratios and healthy bottom lines,” the BSP said in the report released Thursday.

The central bank said the strength of the Philippine banking system would shield it from any adverse impact arising from the turmoil in the eurozone.

The report showed that combined net profit of banks in the country grew by 28 percent in the first semester to P51.9 billion from P40.6 billion in the same period last year.

It also showed that resources of the banking system grew by 11.5 percent to P7 trillion from P6.29 trillion over the same period. This was supported largely by a growing deposit base.

The growing income and total resources of banks allowed the institutions to extend more credit to individual and corporate borrowers—a development the central bank said would help support growth of the economy.

Total loan portfolio of banks in the country, net of inter-bank loans, amounted to P3.04 trillion—up by 17 percent from P2.6 trillion. Credit growth sharply accelerated from the 10 percent recorded last year.

The BSP also said banks in the country would have the ability to absorb risks, as reflected in their comfortable capital base.

As of end-March, the average capital adequacy ratio of banks in the country hit 16.5 percent, exceeding the international benchmark of 8 percent and the central bank’s requirement of 10 percent.

The BSP said banks could sustain a capital adequacy ratio of over 10 percent by the end of the first half.

Citing the favorable indicators for the banking system, the BSP believes that industry members are capable of absorbing risks brought on by a challenging global economic environment.

The BSP said stress tests for banks in the country were recently conducted. Results showed that most would remain profitable and liquid even in the face of a worst-case scenario of 50-percent loss on their credit exposures.

The ongoing debt crisis in Europe is expected to dampen the financial sectors and general economies of other regions, particularly those in Asia.

But the BSP said that the favorable standing of local banks would enable them to continue to support the Philippine economy, primarily by extending loans for investment initiatives.