Banks report 34% profit drop

MANILA, Philippines – Philippine banks reported a 34.1-percent decline in net income in 2008 as the industry suffered huge losses in non-interest income.

The Bangko Sentral ng Pilipinas (BSP) reported that the banking industry’s net income dropped to P41.4 billion in 2008            from P62 billion in 2007, with its total operating income falling 4.7 percent from P281 billion to P268 billion.

Data from the BSP’s Philippine Financial System Report for 2008 showed that banks suffered a huge 25-percent decline in non-interest income last year from P113 billion in 2007 to P84.6 billion.

Interest income, on the other hand, managed a nine percent increase from P168.2 billion to P183.4 billion year-on-year.

Despite the decline in profits, however, the BSP reported that the Philippine banking industry succeeded at expanding its asset base by 10.5 percent from P5.134 trillion to P5.674 trillion.

The BSP said this indicated “sustained core balance sheet strength” considering the steady asset expansion, double-digit credit growth, growing deposit base and improvements in the industry’s asset quality and solvency ratios.

“The depth and magnitude of the global financial crisis remain largey undetermined at this point but one thing is clear: it has already taken its toll on the global financial system,” the BSP said in the annual report.

The BSP also reported that as of end-2008, the banking system’s physical network expanded by 104 offices to 7,848 broken down into 818 head offices and 703 branches and other offices.

Meanwhile, the deposit liabilities of the industry remained the industry’s biggest source of funding, accounting for 73.9 percent of total funds, followed by capital accounts (10.6 percent of the total) and other liabilities (6.5 percent).

Credit growth was also at an all-time high of 21.5 percent since 1997. Excluding the interbank market, the BSP said the biggest loan destinations were real estate, manufacturing and agriculture.

The BSP said the industry’s deposit liabilities grew by 14.5 percent to P4.195 trillion from 3.664 trillion in 2007. The BSP said this indicated sustained depositor confidence in the banking system.

The BSP said the bulk of these deposits were still in peso demand and savings accounts.

However, the BSP said the banking industry’s major investment accounts suffered huge slowdowns although the industry managed positive earnings despite the drop in treasury gains.

Consequently, the BSP said there was a “notable softening” in major profitability ratios.

The BSP reported that earning asset yield stood at 7.7 percent, 20 basis points lower than the 7.9 percent recorded in 2007. Other profitability ratios exhibited similar declines: interest spread at 4.5 percent (from 4.6 percent), return on assets at 0.8 percent (from 1.3 percent) and return on equity at 6.9 percent (from 10.8 percent).

The BSP said the 1997 Asian financial crisis already provided lessons that anchored the key structural reforms implemented in East Asian financial systems post crisis.

As a result, the BSP said banks in the region have very limited exposure to subprime and other structured and securitized products and relatively stronger balance sheets. –Des Ferriols, Philippine Star