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The Philippine banking sector’s total assets as of end-July rose by 7.9% from a year ago, amid the continued growth in loans and deposits. 

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed banks’ assets reached PHP 23.09 trillion as of July from PHP 21.4 trillion a year ago.

“The latest year-on-year growth in banks’ assets or total resources may be attributed to the growth in bank loans, as well as the continued growth in deposits that partly fund banks’ loans,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Banks’ assets are mainly supported by deposits, loans, and investments. These include cash and due from banks as well as interbank loans receivable (IBL) and reverse repurchase (RRP), net of allowances for credit losses. 

The banking industry’s total loan portfolio inclusive of IBL and RRP went up by 8.8% to PHP 12.36 trillion as of end-July from PHP 11.36 trillion in the comparable year-ago period.

Net investments — or financial assets and equity investments in subsidiaries — rose by 9.6% to PHP 6.83 trillion from PHP 6.23 trillion a year ago. 

However, cash and due from banks declined by 10.4% to PHP 2.48 trillion in the first seven months of 2023 against PHP 2.77 trillion last year.

Net real and other properties acquired (ROPA) inched up by 4.7% to PHP 105.1 billion from PHP 100.32 billion in the same period in 2022.

Other assets stood at PHP 1.31 trillion, rising by 38% from PHP 941.249 billion last year.

Meanwhile, the total liabilities of the banking system increased by 7.2% to PHP 20.17 trillion in the first semester from PHP 18.8 trillion in the comparable year-ago period.

“The continued profitability of banks may have also added to the growth in capital and total assets,” Mr. Ricafort said. 

Based on the latest data from the BSP, the cumulative net income of the banking system grew by 24.7% to PHP 178.51 billion as of June from PHP 143.12 billion in the same period in 2022.

Mr. Ricafort also said some banks raised additional capital from the financial markets and strategic investors that boosted the lenders’ finances. This enabled them to extend more loans and make other investments, which boosted their balance sheet. 

By banking group, universal and commercial banks had PHP 21.69 trillion of total assets as of the end of July, while the thrift banks accounted for PHP 950.28 billion.

As of the first quarter of 2023, the BSP counted 45 big banks, 43 thrift banks, and 395 rural and cooperative banks under its supervision. Last year, the BSP approved six digital banks under a new bank category.

BDO Unibank, Inc. has the highest number of total assets in Philippine banks, which stood at PHP 3.92 trillion in the first quarter. This was followed by Land Bank of the Philippines with PHP 3.11 trillion, and Bank of the Philippine Islands with PHP 2.66 trillion. 

Other lenders in the BSP’s top 10 in terms of asset size are Metropolitan Bank and Trust Co., Rizal Commercial Banking Corp., Philippine National Bank, Development Bank of the Philippines, Union Bank of the Philippines, and Security Bank Corp. 

“For the coming months, the economic reopening narrative would still sustain the growth in banks’ loans despite higher interest rates,” Mr. Ricafort said.

The Monetary Board raised borrowing costs by 425 basis points, bringing the target RRP rate to 6.25%.

A  poll conducted last week showed 14 of 17 analysts expect the board to further extend its policy hold on Thursday, Sept. 21. – Keisha B. Ta-asan

The Bangko Sentral ng Pilipinas (BSP) will likely hold interest rates steady for a fourth straight meeting on Thursday, amid slowing economic growth.

A BusinessWorld poll conducted last week showed 14 of 17 analysts expect the Monetary Board (MB) to maintain the policy rate at a near 16-year high of 6.25% despite the inflation uptick in August.

On the other hand, three analysts see the BSP raising borrowing costs by 25 basis points (bps) at the Sept. 17 meeting to preemptively ward off inflationary pressures. If realized, this would bring the target reverse repurchase (RRP) rate to 6.5%.

“I’m expecting the MB to hold (this week), despite the surprise uptick in inflation in August. I highly doubt the latest print will spook members into further action (i.e. another hike); it was well within their target range and their official response to the actual data was fairly nuanced and reasonable, expecting disinflation to resume going forward,” Pantheon Chief Emerging Asia Economist Miguel Chanco said.

Headline inflation unexpectedly quickened for the first time in seven months to 5.3% in August, but within the BSP’s 4.8-5.6% forecast range for the month. Inflation averaged 6.6% in the eight-month period.

“We expect the BSP to keep its policy rate steady at 6.25%. Concerns on growth will likely be front and center,” HSBC Global Research Association of Southeast Asian Nations (ASEAN) economist Aris Dacanay said in an e-mail.

Philippine gross domestic product (GDP) grew by a slower-than-expected 4.3% in the second quarter from the 7.5% a year ago.

For the first semester, GDP growth averaged 5.3%. This was well below the government’s 6-7% target for the year.

Mr. Dacanay said bank lending has also been growing at its slowest pace since the global financial crisis in 2009, barring the coronavirus pandemic in 2020.

BSP data showed outstanding loans of universal and commercial banks, net of RRP placements with the central bank, rose by 7.7% to PHP 11 trillion in July. Loan growth in July was the weakest increase since April.

Patrick M. Ella, economist at Sun Life Investment Management and Trust Corp., said the temporary spike in prices last month is “transitory” and should not prompt another rate hike from the BSP.

China Banking Corp. Chief Economist Domini S. Velasquez said inflation expectations are still well anchored.

“We estimate that inflation could still be on track to reach the BSP’s 2-4% target range by the fourth quarter if domestic supply pressures are addressed in a timely manner,” she said.

Ms. Velasquez said the price ceiling on rice will likely help ease inflationary pressures for September. “Hopefully, the expected delivery of imported rice and harvest this end-September should help ease price pressures,” she added. 

A recent spike in rice prices prompted the Marcos administration to impose a price ceiling on regular milled and well-milled rice at PHP 41 and PHP 45, respectively, starting Sept. 5.

EYE ON FED
University of Asia and the Pacific (UA&P) Senior Economist Cid L. Terosa said the MB will also keep in mind the US Federal Reserve’s next policy decision.

The US central bank is widely expected to keep rates unchanged at the conclusion of its two-day meeting on Sept. 20.

Ms. Velasquez said the Fed could potentially bring its aggressive monetary tightening cycle to an end.

“If realized, this would maintain the current 75 bps interest rate gap and alleviate downward pressure on the peso,” she said.

The peso closed at PHP 56.815 on Friday, depreciated by five centavos from its previous finish of PHP 56.765 against the dollar. Year to date, the peso weakened by 1.8% or PHP 1.06 from its PHP 55.755 close on Dec. 29, 2022. 

“Nonetheless, the policy call will likely be a tough one. Risks to inflation are significantly tilted to the upside with global rice prices rising almost vertically by more than 20%,” HSBC’s Mr. Dacanay said. 

While food inflation may ease in September due to the rice price ceiling, he said the policy response after that is still uncertain.

“We think the BSP will first monitor what the final policy will be before considering a continuation of its tightening cycle. Nonetheless, there is a risk that the BSP preempts any second-round effects by hiking policy rates in anticipation of the price pressures ahead,” he said.

Meanwhile, Jonathan L. Ravelas, senior adviser at Reyes Tacandong & Co. said a 25-bp rate hike on Thursday will be a “calibrated preemptive response to inflation headwinds.”

Colegio de San Juan de Letran Graduate School Associate Professor Emmanuel J. Lopez also expects a 25-bp rate hike due to rising prices of basic commodities, particularly agricultural products, as well as fuel.

From the second week of July to September, oil firms have raised fuel prices by PHP 9.85 per liter for gasoline, PHP 14.05 per liter for diesel and PHP 13.45 per liter for kerosene.

“Not to mention the impending surge in demand brought about by the forthcoming holiday spending. The increase in prices has affected not only food products but across all commodities in the market,” Mr. Lopez added.

Extended pause?
Alvin Joseph A. Arogo, an economist from the Philippine National Bank, said the BSP will likely keep borrowing costs steady for the rest of the year.

“This is appropriate given the relatively weaker economic growth outlook and inflation can still fall below 4% by the fourth quarter of 2023,” he said.

The BSP sees inflation averaging 5.6% in 2023, before easing within the 2-4% target to 3.3% in 2024 and 3.4% in 2025.

“If the currency continues to substantially weaken, however, then the central bank may need to temporarily sacrifice supporting expansion until the peso stabilizes. As such, a final 25-bp hike this year still has a fair chance of happening, whereas a rate cut is very unlikely,” Mr. Arogo said. 

Mr. Terosa said the BSP may take its cue from the US central bank’s next moves.

“Of course, unexpected policy decisions by the Fed in the remaining months of the year can pressure the BSP to change its policy stance,” he said.

Mr. Dacanay said the dollar may experience renewed strength in the coming months, putting pressure on the BSP to keep policy rates high for a longer period to support the peso.

“We continue to expect the BSP to only cut its policy rate only after the Fed cuts its own,” he said. 

Meanwhile, Mr. Chanco said there is still a “decent chance” the BSP will start cutting policy rates within the fourth quarter to support the economy.

“This is, however, contingent on inflation returning to the BSP’s target range in October or November,” he said.

After the Sept. 21 meeting, the MB’s next policy reviews are scheduled for Nov. 16 and Dec. 14. — Keisha B. Ta-asan, Reporter

The Bangko Sentral ng Pilipinas (BSP) recorded a lower net income in the first half of the year as expenses and revenues went up compared with a year ago.

Preliminary data posted on the BSP’s website showed the central bank’s net income fell by 63.6% to PHP 19.86 billion in the January-to-June period from PHP 54.62 billion in the same period last year.

The BSP’s expenses surged by 78.3% to PHP 102.58 billion from PHP 57.53 billion a year ago. Interest expenses more than doubled (171%) to PHP 80.15 billion, while other central bank expenses went down by 19.9% to PHP 22.43 billion.

Revenues edged higher by 6.7% to PHP 90.63 billion in the first semester from PHP 84.96 billion in the comparable year-ago period. Interest income rose by 31.7% to PHP 93.41 billion.

However, the central bank posted a PHP 2.78-billion loss from miscellaneous sources, which include trading gains, fees, and penalties. This is a reversal of the PHP 4.07-billion gain a year earlier.

Still, the central bank swung to a net income in the second quarter after posting a net loss of PHP 1.4 billion in the first quarter of the year.

The BSP’s net gains from foreign exchange (FX) rate fluctuations in the first half of the year reached PHP 31.81 billion, 16.9% higher than the PHP 27.21 billion seen in the comparable period in 2022.

According to the BSP, these are realized gains from fluctuations in FX rates arising from its foreign currency-denominated transactions.

The BSP’s assets hit PHP 7.294 trillion as of end-June, decreasing by 2.1% from the PHP 7.449 trillion a year earlier. Total liabilities inched down by 3.3% to PHP 7.127 trillion as of June from PHP 7.373 trillion in the previous year.

With this, the BSP’s net worth climbed by 119% to PHP 167.34 billion at end-June, more than double from PHP 76.36 billion a year ago. — Keisha B. Ta-asan 

The National Government (NG) gross borrowings fell by 25% in July amid a decline in domestic debt, data from the Bureau of the Treasury (BTr) showed.    

In July, gross borrowings dropped by a fourth to PHP 131.937 billion from PHP 174.951 billion in the same month a year ago.

Month on month, gross borrowings slid by 20.8% from PHP 166.487 billion in June.

Domestic debt accounted for the bulk or 83.75% of total gross borrowings in July.

Gross domestic borrowings fell by 34.2% to PHP 110.498 billion during the month from PHP 167.81 billion a year ago.

Broken down, domestic debt was made up of PHP 108.379 billion in fixed-rate Treasury bonds and PHP 2.119 billion in Treasury bills.

Meanwhile, external gross borrowings, mostly composed of new project loans, more than tripled to PHP 21.439 billion from PHP 7.141 billion.

For the first seven months of 2023, gross borrowings jumped by 24.8% to PHP 1.55 trillion from PHP 1.25 trillion a year ago.

Gross domestic debt stood at PHP 1.17 trillion in the January-to-July period, up by 28.4% from PHP 909.073 billion a year earlier.

This accounted for 75.5% of total gross borrowings in the first seven months.

Domestic debt during the seven-month period was composed of PHP 794.529 billion in fixed-rate Treasury bonds, PHP 283.763 billion in retail Treasury bonds, and PHP 88.703 billion in Treasury bills.

External debt went up by 15.3% to PHP 387.88 billion as of end-July from PHP 336.477 billion a year ago.

This consisted of PHP 163.607 billion in global bonds, PHP 145.059 billion in program loans, and PHP 79.214 billion in new project loans.

“The decrease in gross borrowings could be attributed to relatively lower amount of maturing government bonds/debt during the month,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The narrower budget deficit in July reflected higher government revenue collections, which meant less borrowings were needed, he added.

The National Government’s fiscal deficit shrank by 44.89% to PHP 47.8 billion in July. For the first seven months of the year, the budget gap narrowed by 21.22% to PHP 599.5 billion.

Mr. Ricafort said risk factors like elevated inflation and high interest rates could drive up borrowings.

The National Government has set its borrowing program at PHP 2.207 trillion this year, consisting of PHP 1.654 trillion from domestic sources and PHP 553.5 billion from foreign creditors. — Luisa Maria Jacinta C. Jocson

The Bangko Sentral ng Pilipinas (BSP) does not see the need to resume monetary tightening if there are no more supply shocks such as those that fueled the uptick in August inflation.

BSP Governor Eli M. Remolona, Jr. told reporters on Thursday that the acceleration in August inflation was caused by supply shocks in food and fuel, which dissipate “fairly quickly.”

“If that’s all there is, if there are no further supply shocks beyond that uptick in August, then it won’t be necessary to hike the policy rate,” he said in a press briefing during the Alliance for Financial Inclusion (AFI) Global Policy Forum. “It won’t justify an easing, (but) it won’t be necessary to raise the policy rate.”

The BSP has kept its key policy rate at a near 16-year high of 6.25% for the last three meetings. It has hiked borrowing costs by 425 basis points (bps) from May 2022 to March 2023.

Headline inflation quickened for the first time in seven months in August, hitting an annual 5.3%. It marked the 17^th consecutive month that inflation surpassed the BSP’s 2-4% target range. Inflation averaged 6.6% in the eight-month period.

“I think we should hit the (2-4%) target range by October if there are no further supply shocks. But hitting the target range is not enough. We want to be comfortably within the target range for the year,” Mr. Remolona said.

The BSP projects inflation to hit 5.6% in 2023, before easing within the target to 3.3% in 2024 and 3.5% in 2025.   

Makoto Tsuchiya, assistant economist from Oxford Economics Japan, said the Philippine central bank is expected to maintain its pause despite the quicker inflation in August.

“The central bank is likely to see through the transitory rise in prices. Inflation is still too high to pivot to easing, but the weakening growth picture means a hike is also undesirable,” he said.

Mr. Tsuchiya said inflation could settle within the 2-4% target range by the end of the year, bringing the full-year average to 5.8%. This will allow the Monetary Board to start cutting rates in the first quarter of 2024, he added.

Security Bank Corp. Chief Economist Robert Dan J. Roces in a note said the central bank will consider inflation, economic growth, and other external factors at next week’s policy-setting meeting.

“The recent uptick in the August inflation alone is unlikely to prompt the BSP to resume tightening, recognizing the supply-side nature of the uptick and the fact that there would only be so much that monetary policy can do in such a situation, which requires fiscal complement,” he said.   

Mr. Roces said the BSP will likely keep interest rates unchanged on Sept. 21.   

Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, also expects the BSP to keep rates untouched at its next meeting.

“We believe the hurdle for additional rate hikes will be quite high given the glaring slowdown in growth momentum. BSP admits that tightening efforts have yet to be fully felt with the lagged impact still feeding through to bank lending,” Mr. Mapa said.   

The Philippine economy expanded by 4.3% in the second quarter, the slowest in two years. This was slower than the 6.4% growth in the first quarter and 7.5% in the same period last year. For the first half, economic growth averaged 5.3%, lower than the government’s 6-7% target. 

Mr. Mapa noted recent price shocks to inflation are supply side in nature and is best dealt with non-monetary measures.   

“BSP will only hike should inflation expectations become disanchored or to steady the currency,” he said, adding that the Philippine central bank will likely consider the policy decision of the US Federal Reserve.   

The Federal Open Market Committee is scheduled to meet on Sept. 19 and 20.

The Monetary Board will be having its sixth policy review of the year on Sept. 21.

Mr. Remolona told reporters that the new Monetary Board members will be participating in next week’s meeting.

National Treasurer Rosalia V. de Leon and former Finance undersecretary Romeo L. Bernardo were recently appointed as the new members of the policy-making body of the BSP. — Keisha B. Ta-asan,  Reporter