Philippine banks outperformed regional peers in 2011

The Phlippine banking sector outperformed most of its counterparts in Southeast Asia in 2011 as resources and capital grew further and exposure to bad loans fell to its lowest in over a decade.

This was according to the Bangko Sentral ng Pilipinas (BSP), which said in its latest “Status of the Philippine Financial System” report that, given the favorable financial indicators they posted as of end-2011, banks in the country are expected to remain stable even with the backdrop of a mild recession in the eurozone this year.

“Key indicators showed further strengthening of banks’ balance sheets with positive growth in assets, loans, deposits and capital,” the BSP said in the report.

Data from the central bank showed that the average non-performing loan (NPL) ratio of universal and commercial banks in the Philippines fell to the 2-percent territory last year to match levels seen prior to the Asian financial crisis of 1997.

NPL ratio, a closely watched indicator, is the proportion of bad loans to total outstanding loans extended by banks. Loans are described as “bad” or “soured” if these remain unpaid for at least 30 days after maturating.

Moreover, the average capital adequacy ratio (CAR) of banks in the country stands close to 17 percent, which is above the minimum requirement of 10 percent set by the BSP. A CAR of at least 8 percent is considered comfortable under international standards.

Meantime, the combined resources of banks in the country hit P7.61 trillion by the end of last year, rising over 5 percent from the previous year’s P7.23 trillion. The rise in resources was driven by the increase in deposits and profits.

Combined net incomes of banks in the country amounted to P96.16 billion last year, up by 15 percent from P83.36 billion the previous year.

“Banks remained profitable and provided positive returns to shareholders on account of cost-efficient operations,” the BSP said, noting that the indicators are better than those of other banking sectors in Southeast Asia.

With the favorable indicators, the BSP is set to impose on Philippine banks the stricter capitalization requirements under the Basel 3 framework starting January 2013, ahead of the 2014 schedule to be observed by most central banks.

“This places the Philippines alongside Australia, China, Hong Kong and Singapore which all have announced to adopt Basel 3 standards earlier [than 2014],” the BSP said.

The BSP is confident the recession in the eurozone will not have any serious impact on Philippine banks. It said that investments by Philippine banks to euro-denominated assets account for just 1.1 percent of their total assets.

The crisis in the West has raised concerns that banks based there may dispose of some of their assets—such as portfolio instruments purchased from and subsidiaries located in emerging Asian markets—to shore up capital.