Banking industry profit down 34.7% in first 6 months

MANILA, Philippines–The earnings of the domestic banking industry slid by more than a third in the first half on the back of moderate interest rate increases, according to the Bangko Sentral ng Pilipinas (BSP).

Documents released by BSP on Tuesday showed that the net profit of the Philippine banking system as of end-June went down to P63.7 billion from P97.7 billion in the same six-month period last year.

The net profit decline during the first semester of 2014 was a reversal of the robust 60.6-percent increase posted by the banking system in the first half of 2013.

The BSP attributed the lower combined bottomline of the country’s banks to “moderate upward movement of domestic interest rates, which resulted in revaluation and mark-to-market losses in banks’ trading books.”

However, the BSP said that “interest-related revenues continued to support core earnings.”

At end-2013, the banking industry’s net profit stood at P144.6 billion, almost a fifth higher than the P121.9 billion posted in 2012.

During the January-to-June period, the banking sector’s assets expanded “beyond market expectations,” growing by 19.3 percent to P10.28 trillion from P8.61 trillion in the same period last year.

The industry ended 2013 with P9.97 trillion in assets, up 23.9 percent from the P8.05 trillion recorded in 2012.

According to BSP, the country’s financial system as a whole “remained strong and healthy in the first half of 2014 amid lingering market uncertainties brought about by the US normalization policy [or tapering] and China slowdown,” mainly on the back of the “strong performance of the banking system.”

The banking sector accounts for about four-fifths of the assets of the domestic financial system.

The BSP said that the domestic banking industry’s performance during the first six months was “still commendable” despite the profit drop as it was the only banking system out of the Asean-5 and the 65 Moody’s-rated banking systems in the world that earned a positive outlook from the international credit watcher for the next 12-18 months. Besides the Philippines, Asean-5 includes Indonesia, Malaysia, Singapore and Thailand.

At the end of the first half, the country has 664 operating banks, 9,456 bank branches, 14,843 automated teller machines (ATMs), 328 microfinance banking offices and 245 banks with electronic banking services.

As for the remainder of the year, the BSP said that there were “risks arising from ever-changing market conditions and emerging regulatory architecture,” which could signal sharp turns and pressure points that might warrant “careful monitoring, pro-active supervisory response and calibrated reform implementation.”