RP lenders’ profits take a hit amid global banking crisis

But local financial system still healthy, says BSP
 
LOCAL banks took a bath last year, but emerged otherwise unscathed from the worst crisis to hit global lenders, according to the Bangko Sentral ng Pilipinas (BSP).In its report on the Philippine Financial System for the second semester of 2008, the BSP said the country’s financial system managed to stay afloat amid the global financial crisis brought about by the subprime crisis and subsequent recession in the world’s biggest economies.

But all profit indicators of local banks registered declines. Banks worldwide suffered income declines on write downs following the collapse of big-name Wall Street lenders particularly in the second half of last year. In the Philippines, Banco de Oro and Metropolitan Bank and Trust Co. led local banks that wrote down their exposures to troubled investment-banking giants like Lehman Brothers.

According to the BSP, Philippine lenders’ return on equity (ROE) and return on assets (ROA)—the two broadest measures of profitability—slipped to 6.9 percent and 0.8 percent, respectively, from 10.8 percent and 1.3 percent in 2007.

The local financial system’s asset quality, however, continued to improve, with their bad loans and non-performing assets ratios dipping to pre-Asian crisis levels of 4.5 percent and 5.1 percent, respectively.

The second-semester report however failed to include the yearend capital adequacy ratio of the Philippine banking system.

At end-December, the banking system’s physical network expanded by 104 offices to 7,848 (including 818 head offices and 7,030 branches and other offices) from 7,744 (847 head offices and 6,897 branches and other offices) in 2007.

The system’s assets grew 10.5 percent with sustained growths in loans of 21.5 percent and financial assets other than loans of 22.3 percent.

Meanwhile, deposit liabilities, capital accounts and other liabilities remain the primary funding source of banks.

Deposit liabilities posted a 14.5-percent growth to P4.195 billion from P3.66 billion in 2007. The bulk of these deposits were still in peso demand and savings account.

However, with deposit liabilities as the banking’ primary source of fund, there was a heightened social expectation for banks after the subprime crisis and the Legacy controversy.

The top three loan destinations outside the financial and interbank market were the real estate, manufacturing and agriculture-related sectors.

Assets-to-deposits ratio improved to 52.2 percent from 51.9 percent in 2007.

Credit growth reached an all-time high of 21.5 percent since the 1997 Asian financial crisis.

The BSP said the Asian financial crunch anchored the key structural reforms implemented in emerging economies, including the Philippines, in East Asia resulting in very limited exposure to subprime and other structured and securitized products, stronger balance sheets, as well as improved risk and liquidity management frameworks. –Lailany P. Gomez, Reporter, Manila Times