PHL banking system remains stable and supportive of the economy

The Philippine banking system remains stable amid the COVID-19 crisis and in a strong position to service the financing requirements of the recovering economy, according to the Bangko Sentral ng Pilipinas (BSP).

“The positive performance of the Philippine banking system is evidenced by sustained growth in its assets, deposits, and capital, as well as ample capital and liquidity buffers and loan loss reserves,” said BSP Governor Benjamin E. Diokno.

Based on end-July 2021 preliminary data, banks’ total assets grew by 5.4 percent year-on-year (YoY) to P19.8 trillion.

Bank assets were primarily in the form of loans (52.6 percent) and portfolio investments (26.6 percent). Funding was sourced largely from deposits, which grew by 7.2 percent YoY to P15.4 trillion, indicating the public’s continued trust and confidence in the banking system.

As of end-July 2021, total loans declined by a slower rate of 0.4 percent year-on-year to P10.8 trillion as of end-July 2021 compared to the 5.0 percent decline a year ago.

Credit activity is expected to improve in the coming months amid the accommodative policy stance of the BSP, the National Government’s accelerated vaccination program, as well as implementation of safety measures and granular lockdowns in the National Capital Region.

This view is consistent with the results of the latest banking industry survey^[1] which showed that credit outlook remains positive with double-digit growth in the next two years.

The gross non-performing loan (NPL) ratio stood at 4.5 percent as of end-July 2021 but was accompanied by high NPL coverage ratio of 82.4 percent. This remains within the BSP’s and banks’ projections for the year.  The operationalization of the Financial Institutions Strategic Transfer Act will also provide banks with a stand-by facility to offload their non-performing assets in case these post a sharp increase.

Moreover, banks maintained sufficient capital and liquidity buffers.  For the first half of 2021, the Capital Adequacy Ratios of the universal and commercial banking (UKB) industry further improved to 17.0 percent and 17.6 percent on solo and consolidated bases, respectively, and remained higher than the 10 percent regulatory minimum.

Liquidity buffers also remained well-above the minimum threshold of 100 percent. In particular, the UKB industry’s solo and consolidated Liquidity Coverage Ratio stood at 198.4 percent and 196.4 percent, respectively, as of end-June 2021. Meanwhile, the Net Stable Funding Ratio of the UKB industry remained high at 144.4 percent and 144.5 percent, respectively, on solo and consolidated bases, during the same period.

“The BSP will continue to adopt policy reforms on risk governance aimed at promoting the continued safety and soundness of the financial system against the backdrop of rapid advancements in technological innovations, an evolving financial ecosystem, and the increasing attention towards the attainment of social and environmental goals,” explained Governor Diokno.