BSP Report on the Philippine Financial System Highlights Sound and Stable Banking System

The Report on the Philippine Financial System for the second semester of 2018 highlights that with the banking system at its core, the financial system remains resilient amid evolving domestic and global environment.

Positive performance was evident across banking groups which posted sustained growth in assets, loans, deposits and capital. The universal and commercial bank industry primarily financed the growth of the major economic sectors such as real estate, wholesale and retail trade and manufacturing. Meanwhile, the thrift bank and rural and cooperative bank industries supported the retail lending segment, particularly in providing loans to consumers, the micro, small and medium enterprises and the agri-agra sector.

The financial soundness indicators affirm that the banking system is stable and resilient despite global uncertainties. Capital, mainly comprised of common equity and retained earnings, remained well above domestic and global benchmarks; credit quality was satisfactory notwithstanding double-digit loan growth; profits generated primarily from core income were at record high; and the banks' high quality liquid assets were sufficient to absorb shocks while adequately providing the financing needs of the growing economy. The BSP's surveillance activities are complemented with proactive engagement with supervised financial institutions promoting effective management and monitoring of incipient risk to the system.

Likewise, foreign bank branches and subsidiaries, the foreign currency deposit system, trust operations, quasi-banks and other non-bank financial institutions all registered positive growth contributing to the resilience of the overall financial system.

The Report also includes two box articles pertaining to the impact of prudential regulations on bank lending rates and the application of proportionality in domestic banking regulations. The results of the study in Box Article 1 indicate that the lending rate charged by banks has only marginally risen following the adoption of bank regulations and prudential reforms. The article emphasizes that such increase is a necessary adjustment to maintain stability of the banking system. Meanwhile, Box Article 2 shows that the BSP adheres to the application of the principle of proportionality in the regulation and supervision of the banking system. The approach ensures the suitability of policies and creates an enabling ecosystem where regulatory and business objectives converge.

As a whole, the strong fundamentals of the financial system provided a solid foundation for its sustained positive performance in 2018. These, together with the BSP's sustained implementation of financial sector reforms and support from industry participants, will enable the financial system to remain in the growth trajectory moving forward.

Source: Bangko Sentral ng Pilipinas (BSP)