Commercial banks post 31% earnings growth

MANILA, Philippines – Earnings of universal and commercial banks operating in the Philippines surged 31 percent despite booking foreign exchange losses amounting to P5.87 billion as 2010 emerged as a banner year for the country’s banking industry on the back of higher interest and non-interest income, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Statistics showed that the net income of universal and commercial banks reached P83.36 billion last year or P19.64 billion higher than the net profit of P63.72 billion booked in 2009.

The BSP traced the higher earnings to a 6.4-percent increase in net interest income to P183.98 billion last year from P172.88 billion in 2009 as interest expense fell by 10.4 percent to P92.14 billion from P102.53 billion.

Statistics showed that non-interest income of universal and commercial banks jumped 24.4 percent to P116.98 billion from P94 billion on the back of higher fees and commissions income, gains on financial assets and liabilities held for trading, gains from sale of non-trading financial assets and liabilities, among others.

Due to the continued strengthening of the peso against the dollar, the central bank data showed that universal and commercial banks booked foreign exchange losses amounting to P5.87 billion last year reversing foreign exchange gains amounting to P14.13 billion booked in 2009. The peso strengthened by 5.3 percent to P43.885 to $1 last year from P46.356 to $1 in 2009.

Statistics showed that non-interest expenses for compensation and fringe benefits, taxes and licenses, fees and commissions, and other administrative expenses went up by 8.7 percent to P186.28 billion from P171.28 billion.

BSP Governor Amando M. Tetangco Jr. said in a speech during the economic briefing and general membership meeting of the Management Association of the Philippines (MAP) the other day that the country’s banking industry remained sound and stable amid the reforms being undertaken by the central bank.

“Continuing reforms have sustained banking system’s soundness and stability, enabling it to perform a catalytic role for a more dynamic and participatory development. Banks balance sheets have been strengthening,” Tetangco stressed.

He pointed out that bank lending rates have been trending downwards as banks passed on to their clients the reduction of BSP’s interest rates to historic lows.

The BSP’s Monetary Board slashed key policy rates by 200 basis points between December 2008 and July 2009 to cushion the impact of the global financial crisis on the domestic economy. This brought the overnight borrowing rate to a record low four percent and the overnight lending rate to six percent.

Due to benign inflation outlook, the BSP kept key policy rates at record lows for 20 straight months until last March 24 when it raised interest rates by 25 basis points due to the continued build up in inflation pressures on the back of escalating global food and oil prices.

Tetangco added that bank lending continued to rise between 10 percent and 11 percent per year while the country’s domestic liquidity or M3 expanded by a robust 10 percent per year.

On the other hand, he explained that the non-performing loans (NPL) ratio of universal and commercial banks remained at a low of 3.0 percent or way below the pre-1997 financial crisis level of four percent.

The BSP chief added that the capital adequacy ratio of universal and commercial banks ranges from 15 percent to 16 percent well above the central bank’s 10-percent minimum requirement and the international benchmark ratio of eight percent under the Basel Accord.

NPL ratio of universal and commercial banks is at a low of three percent now while the capital adequacy ratio of banks has been above the regulatory standards. The CAR of universal and commercial banks is now between 15 percent and 16 percent,” Tetangco said. –Lawrence Agcaoili (The Philippine Star)