Philippine banks’ net income up 12% in first 9 months

MANILA, Philippines—Universal and commercial banks posted yet another double-digit income growth rate by the end of the third quarter, buoyed partly by earnings from increased lending operations.

The combined net income of the large banks amounted to P69.63 billion in the first three quarters of the year, up by 12 percent from P62.03 billion in the same period in 2010, data from the Bangko Sentral ng Pilipinas showed.

Data further showed that profit growth was driven largely by “interest income,” which consisted mainly of earnings from lending to corporate and individual borrowers.

Income from interests, mainly those charged to borrowers, less expenses for interests paid to depositors, amounted to P145.18 billion, rising by 6 percent from P136.52 billion over the same period.

Banks have been lending more in 2011 compared with 2010, thanks to growing resources of banks largely supported by rising deposits from the public.

According to monetary officials, the increase in the amount of savings placed by individuals and corporate entities in banks reflects both the generally rising income levels and the confidence of the public in the country’s banking sector.

Officials said credit growth has grown by nearly 20 percent in 2011, accelerating from about 10 percent last year as banks generated more resources.

But while lending is rising much quickly this year, there are suggestions for banks to extend credit at an even more accelerated pace. This is because banks are believed to have much more resources that they can lend to help boost growth of the economy further.

Industry data showed that banks have about P1.6 trillion in combined deposits to the special deposit account facility of the BSP. This facility gives banks a 4-percent interest, which industry players consider decent and at the same time virtually risk-free.

The BSP agrees with the comments, saying there is indeed more room for banks in the country to lend more.

Nonetheless, the regulator stressed the importance of maintaining prudent lending standards to ensure that faster rise in credit would not result in an increase in defaults, which would hurt banks’ financial standing at the end of the day.

The loans-to-deposit ratio of universal and commercial banks in the country is estimated to be around 70 percent. Analysts said banks could afford to lend some more until reaching a ratio of about 90 percent, which would still be comfortable according to standards observed in banking sectors abroad.

Industry players, however, said they would like to lend more but would like to do so for credit-worthy investment projects.

Economists said banks in the country should be encouraged to lend more to help accelerate the growth of the overall economy, which grew by only 4 percent in the first semester compared with the over 8 percent in the same period in 2010.

The government is eyeing a growth of between 4.5 and 5.5 percent for 2011.