Banks hauled in P83B profits in 2010, P7.9B per banking family

BANKING has never been better, stronger, more stable, more resilient and more profitable in the Philippines than now

This comes as a surprise considering the euro and sovereign debt crisis in Europe; the unemployment, double-dip recession tendency and fiscal crisis in the United States; and the perceptible global economic slowdown this year and next.

Part of the strength of the Philippine banking and financial system is due to the fact that local banks bit the bullet quite early in the game after the 1997 Asian Financial Crisis. Banks unloaded their bad loans, took the requisite hair cuts (or losses), tightened lending standards and practices, and boosted capital as a buffer against future shocks and losses.

Another reason is the strength of the Philippine economy. GDP grew at its fastest in ten years in 2010, with a growth rate of 7.6 percent, following a minuscule 1.1 percent gain in 2009.

The Philippines has plenty of dollars. OFW remittances will top $20 billion this year. International reserves are at their highest ever, $76 billion as of August, equivalent to 11.9 months of imports. Those monies are more than enough to pay, in one blow, the country’s foreign debts of $60.9 billion.

Not to be outdone, banks have been doing their share, ramping up lending. As of the second quarter ended June 30, 2011, the gross loan portfolio of the 37 reporting banks surged to P3,163 billion (P3.16 trillion), a record, and an increase of 20 percent or P526.15 billion over June 2010
The 20 percent rise in bank loans is higher than the 9.5 percent or P421 billion gain in deposits during the second quarter of 2011, to P4.87 trillion.

Demand for loans has been aided by even lower interest rates and of course by consumption.

Average high lending rates have fallen to 7.8 percent in the first nine months of 2011, from 10.6 percent in June 2005. Since January 2011, bank lending has been growing at a steady double digit rates. About 83 percent of the loans went to production activities.

The central bank Monetary Board has kept policy rates steady or low, at 4.5 percent for reverse repurchase or RRP facility.

Despite the aggressive lending, the non-performing loans or NPL of the banks have steadily declined, to P80.8 billion in 2010, from P80.9 billion in 2009, P88.2 billion in 2008, P97.6 billion in 2008, P97.6 billion in 2007, and P117.4 billion in 2006.

Ratio-wise, NPL was down to 3.2 percent in end-June 2011, from 4.0 percent last year. Still, the 3.2 percent ratio is higher than Indonesia’s 2.7 percent, Malaysia’s 2.0 percent, Korea’s 2.3 percent but lower than Thailand’s 3.9 percent.

Capital adequacy ratio or CAR of banks reflects their stability – a steady 16 percent on solo or parent company basis, and 17 percent on consolidated basis as of end-2010. The 17 percent CAR is the same as Indonesia and higher than the 13.9 percent of Malaysia, 14.6 percent of Korea, and 16.4 percent of Thailand, indicating local banks have probably more capital than they actually need as a shield against loan losses.

The banks have never been so profitable. Total operating income of the Universal and Commercial Banking System amounted to P301.0 billion in 2010, a record, and an increase of P34.1 billion or 13 percent from the P266.9 billion in 2009. In 2009, operating income grew a bubbly 19.3 percent, in contrast to a 6.1 percent decline in 2008, when the global financial crisis struck.

Bottomline profits of the banks amounted to a record P83.4 billion in 2010, up 30.8 percent, over 2009.

Though there are 38 commercial banks, 76 percent of the system’s resources are in the hands of just eight people or institutions—Henry Sy Sr 18.97 percent (BDO and China Bank), George Ty 14.35 percent (Metro), Ayala 12.62 percent (BPI), government 13.69 percent (Land Bank and DBP), Lucio Tan 4.98 percent (PNB), Al Yuchengco 5.5 percent (RCBC), Aboitiz 3.48 percent (Union), and foreign 3.28 percent (Citibank).

Get 76 percent of the P83.4 billion profits in 2010, and you have P63.38 billion being shared by just eight families or P7.92 billion per family on the average. Isn’t that nice? Of course, these families have businesses other than banking.

But there are dark clouds in the horizon. Exports have decelerated, almost flat in the first half of 2011. The slowdown in both the US and Europe could hurt exports because they are major markets.

The Philippines was supposed to grow by 5 to 6 percent this year.
Instead, GDP growth will be 4.7 percent this year (or 3.7 percent according to Citibank), harmed by weak exports and slow government spending, and down from 7.6 percent growth in 2010.

In the first half of 2011, GDP growth was 4 percent, less than half of the 8.7 percent growth in the first semester of 2010.

Then there is the crisis in Europe and America, the slowdown in Asia, and an overall slowdown worldwide. Still, in good or bad times, our banks thrive and make plenty of money. –Tony Lopez, Manila Times, Bna.biznewsasia@gmail.com