Banking industry’s net income climbs by 10% as of end-September

The Philippine banking industry’s profits climbed by 10.4% as of end-September, driven by higher interest income and lower losses on financial assets, according to central bank data.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed banks’ cumulative net income rose to PHP 270.352 billion in the January-to-September period from PHP 244.876 billion last year.

As of end-September, banks’ net interest income jumped by 20.4% to PHP 663.240 billion from PHP 550.666 billion last year.

The Philippine banking industry wrote off PHP 457.88 million worth of bad debts in the nine- month period, plunging by 80.1% from PHP 2.3 billion a year ago.

Meanwhile, non-interest income declined by 21.3% to PHP 165.406 billion as of end-September from PHP 210.21 billion in the same period in 2022.

“The banking sector has shown remarkable resilience in the face of a high interest rate environment, supported by the strong demand from businesses and consumers,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message. 

The Monetary Board has kept the benchmark interest rate at a near 16-year high of 6.25% from March until October this year. It raised the policy rate by 25 basis points to 6.5% in an off-cycle move on Oct. 26.

The banking industry’s continued double-digit income growth can also be attributed to the pickup in economic activities, which supported loan demand, higher interest income, and better asset quality, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

The BSP earlier said that outstanding loans by big banks grew by 6.5% year on year to PHP 11.17 trillion in September. However, this was slower than the 7.2% growth logged in August.

The pace in September was the slowest in 21 months or since the 4.8% expansion recorded in December 2021. September also marked the sixth straight month of easing loan growth.

On the other hand, the banking industry’s nonperforming loan (NPL) ratio eased for the fourth straight month in September. The NPL ratio stood at a six-month low of 3.4%, easing from 3.42% seen in both August 2023 and September 2022.

The sustained recovery in many pandemic-hit industries also spurred more financial transactions, which led to higher earnings for banks, Mr. Ricafort said.

BSP data showed the total operating income of Philippine lenders grew by 8.9% to PHP 828.647 billion from PHP 760.877 billion in the comparable year-ago period.

Earnings from fees and commissions increased by 15.7% to PHP 103.396 billion as of September, from PHP 89.36 billion in the same period in 2022.

The industry’s trading income inched up by 0.8% to PHP 17.23 billion in the first nine months from PHP 17.09 billion a year prior.

Non-interest expenses of banks, including compensation and fringe benefits, taxes and licenses, fees and commissions, and administrative expenses rose by an annual 12.2% to PHP 462.601 billion.

The industry’s losses on financial assets dropped by 6.49% to PHP 58.92 billion as of end-September.

Provisions for credit losses fell by 15.1% to PHP 66.19 billion.

Meanwhile, banks’ total loan portfolio grew by 7.6% to PHP 13.05 trillion as of end-September from PHP 12.12 trillion a year earlier.

Deposit liabilities stood at PHP 18.28 trillion, up by 9.3% year on year.

The industry’s total assets rose by 8.9% to PHP 23.99 trillion as of September.

Despite high interest rates, Ms. Velasquez said the businesses and consumers have benefited from sustained economic growth.

“However, it is important to note that a prolonged period of high interest rates may eventually lead to a slowdown in loan demand, which could impact the performance of the banking system in the upcoming year,” she added.

The BSP is scheduled to have a policy meeting on Thursday. Most analysts expect the Monetary Board to hold policy rates steady due to the slower-than-expected October inflation print.

Headline inflation eased to 4.9% in October from 6.1% a month prior. This brought the year-to-date average to 6.4%, still above the BSP’s 5.8% baseline forecast.

However, easing inflation and possible interest rate cuts in 2024 could lead to more trading and other investment gains for banks and other financial institutions, Mr. Ricafort said.

“Further economic reopening and recovery would continue to sustain the growth in the loans/credit, investments, and in other banking products and services,” he added. — Keisha B. Ta-asan, Reporter