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Philippine Financial System Remains Sound and Stable

05.06.2016

The Philippine financial system remained sound and stable in 2015 despite the challenging global financial landscape. With the banking system at its core, the financial system continued to provide needed funding to a growing economy.

As the Bangko Sentral ng Pilipinas (BSP) pursued sustained reforms with financial sector stakeholders, the banking system posted sufficient capitalization, improved asset quality and continued growth in assets, loans and deposit liabilities.

Banks’ risk-taking activities and overall operations had manageable impact on capital and profitability. The current capital adequacy ratio (CAR) at 14.9 percent on a solo basis of universal and commercial banks indicates sufficient capitalization.  Net profit was relatively stable at P134.6 billion despite tempered trading gains on the back of rising interest rates.

Funding remained largely sourced from retail and peso deposits of residents.  Meanwhile, foreign currency deposit liabilities comprised 16.7 percent of total deposit liabilities. Banks were generally compliant with the required asset and liquid asset cover ratios of 100 percent and 30 percent, respectively.

The trust industry sustained its growth, albeit modest at P8.1 billion (0.3 percent), to P2.7 trillion. The growth was supported by increasing concentration and faster growth in financial assets particularly corporate debt securities over equity investments. Overall dollar-denominated assets propped up the expansion in trust assets.

 Foreign bank branches and subsidiaries (FBB) similarly ended 2015 with improved solvency, asset quality and liquidity. Profitability was maintained on higher interest income. The four new FBBs brought in fresh funds to the Philippine banking system when they commenced operations in 2015.

Other non-bank financial institutions exhibited prudence in their overall risk-taking activities and provided sufficient capital buffers for unforeseen shocks from their operating environment i.e., rising interest rates. In particular, non-bank financial institutions with quasi-banking functions (consisting of investment houses and finance corporations) reported positive net profit and sufficient capitalization with borrowings mostly in the form of deposit substitutes. 

Notwithstanding the sustained positive performance of the financial system, the BSP continues to bolster the banking system’s capabilities to address potential risks. This is in line with the BSP’s objective of promoting greater financial stability.

View Table 1  |  Table 2  | Table 3

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