Banking system maintains capital and liquidity health in 2nd year of pandemic – Manila Bulletin


The domestic banking sector has maintained its positive growth in terms of assets, loans, deposits, net income, exposure to money and capital markets amid the pandemic which has now lasted 21 months.

BSP Governor Benjamin E. Diokno

The Bangko Sentral ng Pilipinas (BSP) in various reports and statements by its officials led by BSP Governor Benjamin E. Diokno continues to assure the banking public that its supervised financial institutions or BSFIs are resilient enough to withstand global financial conditions stricter with the normalization of policies now that there are signs – despite the lingering uncertainties – of a post-pandemic recovery.

Diokno said that based on the central bank’s stress tests, the level of capital and liquidity in the banking system will allow the sector to cushion the impact of an asynchronous global recovery.

Leading BSP indicators point to a strong position for banks to meet the funding needs of an economy that may emerge from a pandemic-induced recession after five quarters of GDP contraction.

Banks with capital

As of mid-2021, the 46 major banks remained well capitalized with a capital adequacy ratio (CAR) of 17.6%, which was above the minimums of 10% and 8% set by the BSP and the Bank. international regulations. The last CAR was better than the 17.1% at the end of 2020.

CAR is the measure of a bank’s capital health relative to its risks and liabilities. Despite the pandemic and its impact on the ability of borrowers to repay their loans, banks’ risk-taking activities were supported by adequate capital which was mostly comprised of common stock and retained earnings.

Based on central bank stress testing exercises, most banks are able to absorb losses under assumed credit impairment scenarios, as banks are proactive in ensuring that their credit risks are sufficiently funded.

As for the banks’ liquidity, they have kept sufficient buffers to meet their operating needs. The liquidity coverage ratio (LCR) of large banks was 198.4% and 196.4%, respectively, in the first half of 2021. The relatively high LCR indicates banks’ ability to fund needs in the event of liquidity shocks short term.

The big banks take the lion’s share of the capital of the banking systems with 91.1%. Savings banks represent 6.7% while rural and cooperative banks represent 2.2%.

Bad debts manageable

Banks’ impaired loans or non-performing loans (NPLs) and their ratio to the total bank loan portfolio have increased during the 21-month pandemic due to the inability of borrowers to pay their obligations since revenues and employment have been interrupted – even stopped – by containment measures. The two Bayanihan laws have also had an impact on the PNPs of banks that have been unpaid and impaired loan accounts for more than 30 days.

The high NPL and NPL ratio was, however, supported by higher loan loss provisioning which showed that despite a slowdown in economic activity, banks are well capitalized and sufficiently liquid to provide adequate amounts for loan losses. .

In October this year, banks had an NPL ratio of 4.42%, higher than the same period in 2020 of 3.72%. The delinquent loan ratio was 5.16%, compared to 4.83% last year.

Total bad debt stood at 483.98 billion pesos at the end of October, up from 395.06 billion pesos in the same period last year, based on BSP data. The total loan portfolio stood at 10.96 trillion pesos, also higher than the 10.61 trillion pesos of the previous year.

The NPL coverage ratio, however, continued to improve to 85.41% from 84.42% in September, but is below 88.03% in October 2020. Provision for credit losses reached 413 .37 billion pesos, up from the same period in 2020 of 347.77 billion pesos, indicating buffers for loan loss coverage.

Sustained benefits

Despite the pandemic and a higher NPL ratio which the BSP says could peak at 8.2% in 2022, Diokno said banks remain profitable.

At the end of the third quarter or the end of September 2021, the industry reported a cumulative net profit of 168.21 billion pesos, up 35% year-on-year or compared to 124.55 billion pesos.

BSP statistics showed that bad debts of delisted banks continue to swell to reach 6.36 billion pesos at the end of September, up 126.15% from 2.81 billion pesos in the same period l last year.

Of the total industry profits, the 46 major banks accounted for 155.86 billion pesos of net profits. This figure was higher by 37.15% compared to 113.64 billion pesos in 2020. The net profits of savings banks also increased by 17.28% to reach 9.82 billion pesos against 8.37 billion of pesos.

Loans and deposits are the main sources of income for a bank. Banks earn money from interest earned from loans, investments, and operations.

Bank lending has gradually improved in 2021 as more sectors of the economy are opened up. The government’s rapid deployment of its vaccination campaign that led to the opening of businesses is slowly reactivating bank lending activities.

In October, the outstanding loans of the big banks sustained their growth by increasing by 3.5% over one year. That’s an improvement from September’s 2.7%, according to BSP data. It is also the third month in a row that bank lending has turned positive after eight months of contraction.

The outstanding loans of the big banks amounted to 9,270 billion pesos net of reverse repurchase agreements or investments of the banks with the BSP, of which 8,210 billion pesos were borrowed “for production by economic activity ” such as for real estate activities, information and communication, financial and insurance activities and the manufacturing industry.

Consumer loans, however, fell to 7.2% growth in October from 7.8% in September due to a slower increase in credit card loans and general purpose payroll loans. Total consumer loans reached 806.75 billion pesos in October, including 410.80 billion pesos in credit card loans and 307.55 billion pesos in car loans.

Diokno said credit activity continued to grow for the third straight month as banks’ overall lending attitude improved along with the economic outlook. And, despite a rise in the unemployment rate in the third quarter due to the lockdowns, jobs that were not previously available are now being recovered.




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