THE financial system is sound and robust and will sustain its growth despite growing external uncertainties, the Bangko Sentral ng Pilipinas’ (BSP) said in a half-year report.
The BSP said that banking system’s assets, loans, investments, deposits, capital accounts and core income, all grew in the double digits.
It said the growth “showcases resilience amid global volatilities and ensures another pillar to support the economy’s progress.”
Even as credit expands, lending remained “prudent” and maintained a “satisfactory” asset quality, with the non-performing loan ratio at 1.9% in the first half, unchanged from a year earlier.
“The Philippine financial system maintained its growth trajectory in the first semester of 2018 on the back of progressive implementation of financial sector reforms, sound governance and risk culture as well as pursuit of financial innovation,” it said.
“While there are lingering volatilities in the external macroeconomic environment, the country’s underlying fundamentals and continued investor confidence supported the steady growth of the domestic financial sector,” it added.
The BSP cited external risks such as the potential faster-than-expected US monetary policy tightening, prolonged global trade tensions, and rising inflation expectations amid the rise in world oil prices.
The banking system accounted for 82% of the financial system’s total resources in the first half. Total resources were channeled mostly to loans than investments, with 58.3% in the former, and 22.1% in the latter.
The BSP said that banks’ preference for interest-based revenue and longer-dated instruments helps them avoid potential mark-to-market losses amid higher interest rates.
Core lending grew 16.7% year-on-year in the six months to June, allocated largely to the real estate, wholesale trade, manufacturing, household, and utilities sectors.
Meanwhile, banks’ capital adequacy ratio improved to 15.2% at the end of June, from 14.4% at the end of 2017, but down from 15.3% a year earlier due to the “faster rise in the accumulation of risky assets compared to banks’ capital expansion activities.”
Nonetheless, the indicator remains well above the 10% standard set by the BSP, and the 8% Basel 3 minimum capital requirement, indicating that banks are “well prepared to withstand shocks to their balance sheets.”
“The financial soundness indicators suggest that the Philippine banking system is stable. Meanwhile, the findings of the BSP empirical studies in this section imply that consequent risks from lending should be monitored especially in the event of excessive uncertainties that could place additional pressures on the banking system in the short and medium run,” the BSP said.
“In particular, intense supervisory engagement with banks should continue to supplement the close monitoring and surveillance activities currently being employed for these types of credit exposure,” it added. — Elijah Joseph C. Tubayan

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