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Philippine Financial System Rides the Competitive Shifts in 2014 with Responsive, Responsible and Remarkable Performance

05.05.2015

The Philippine financial system is riding the competitive shifts in 2014 with responsive, responsible and remarkable performance. 

The System expanded by 12 percent on double-digit growth in loans (19.5 percent) and portfolio investments (13.3 percent) with stable funding from domestic (98.8 percent), retail deposits which similarly grew by 12.1 percent year-on-year. Despite the robust expansion, the quality of banks’ credit underwriting standards and commitment to asset cleanup are still on point as gross non-performing loan (NPL) ratio further eased to 2.3 percent from 2.8 percent last year. This is 1.7 percentage points lower from the pre-1997 Asian Financial Crisis level of around 4 percent and a significant turnaround from the peak of 16 percent during the Oil Crisis in 2001. Meantime, loan loss coverage ratios for NPLs and non-performing assets (NPA) were kept at 119.8 percent and 77 percent, respectively. There was also ample liquidity in the system for further expansionary credit as liquid assets-to-deposit ratio rose to 55.6 percent from 59.5 percent last year. Banks’ capitalization remained strong as capital adequacy ratio (CAR) stood at 15.4 percent on a solo basis and 16.2 percent on a consolidated basis. Apart from stronger balance sheets, banks reported a positive bottom line as net profit, albeit growth dipped by 6.9 percent, reached P135.0 billion from P144.9 billion in 2013 driven by the small but palpable shift in non-interest based revenues particularly of trading income.  Domestic banks are intrinsically stronger and more profitable compared to their foreign counterparts.

At end-2014, the country has 648 operating banks, 9,700 bank branches, 15,695 ATMS, 517 microfinance banking offices, and 271 banks with e-banking services (i.e., internet, mobile, phone, e-wallet and remittance cards). The BSP continues to widen financial access points under a defined financial inclusion strategy.

Thus, it came as no surprise that international credit watchers and market analysts consider the Philippine banking system as one of the strongest in the region as it is currently the only banking system out of the 69 rated banking systems in the world that received a POSITIVE outlook from Moody’s in 2014 (two times in a row).  The country’s financial freedom score also improved by 10 notches on continuing modernization and liberalization of the banking system with the removal of limits to foreign bank entry in 2014 against the backdrop of an efficient regulatory environment.

Notwithstanding the solid performance of the financial system in 2014, the BSP continues to closely monitor potential pressure points. This is in line with the BSP’s objective of promoting greater financial stability.

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