Banks post turnaround in income to P315B in ’09

After contracting 4.5 percent, the operating income of local banks and financial institutions grew 7.1 percent last year to P315.7 billion, Bangko Sentral ng Pilipinas (BSP) data released recently showed.

The same data was only P183.8 billion in 2008 which was a contraction from operating income of P281.2 billion in 2007.

The BSP said banks showed steady asset expansion, sustained credit growth, a growing deposit base, ample liquidity, continuing improvement in overall asset quality and above-standard solvency ratios last year.

It noted that Greece’s fiscal woes first came to the fore last year but local banks “kept a watchful eye on key risk barometers to address potential hazards coming from the internal and external sectors.”

The BSP said local banks are benefitting from reform measures put in place by the government.

For instance, while the banks have since undergone consolidation, there should still be room for the remaining players to merge, particular the top 25 performing lenders.

“First, there is enough room for further industry consolidation to develop stronger and economically viable financial institutions in the Philippine banking system. As of end-December 2009, the Herfindahl- Hirschman Index or HHI of the top five banks of the system stood at 613.2, which was still below the 1,000 benchmark for competitive marketplaces,” the BSP said.

The numbers indicate the system can stand further rounds of consolidation and that “there is still room for industry consolidation in the Philippines.”

As a result, both the BSP and the Philippine Deposit Insurance Corp. signed a memorandum of agreement with the view to speed up the process of bank consolidation and mergers.

The banks have also been cited for adhering to more strict adherence to corporate governance standards which was confirmed when a survey established that domestic banks scored very high in their governance practices.

“The first survey confirmed that domestic banks were high fliers with an average industry score of 84 percent over listed financial firms’ 72 percent and government corporations with just 57 percent,” the BSP said.

Its report said the local financial system “managed to pass behind the dark clouds of the 2008 subprime crisis and came out in one piece.

“While the flight toward greater financial stability may be long and bumpy after a turbulent storm, sustained commitment to reforms and best practices will (push) the system to its rightful destination on time.” –Daily Tribune