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Philippine lenders’ earnings up 14% on lending, trading gains

By Keisha B. Ta-asan and Aaron Michael C. Sy, Reporters

THE NET INCOME of the Philippine banking industry rose by 14.4% last year amid higher interest income and trading gains, according to central bank data.

Banks’ net income rose to P354.93 billion from P310.12 billion in 2022, spurred by a 20% year-on-year increase in net interest income to P906.872 billion. Noninterest income fell by 15.8% to P218.93 billion from P259.89 billion in 2022.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., attributed improved profits to demand for loans despite high borrowing costs. The sector also had fewer bad loans, he said in a Viber message.

Outstanding loans issued by big banks rose by 7% to P11.701 trillion at end-December. It went up by 2.6% month on month. The December growth rate was unchanged from November, the slowest in three months.

Loan growth slowed for the most part last year amid the central bank’s aggressive rate increases.

The banking industry’s bad loan ratio fell 3.23% in December from 3.41% a month earlier, the lowest in a year, central bank data showed.

Lenders’ gross bad loans stood at P446.99 billion, 12% higher than a year earlier and 1.6% lower than the end-November level. A bank loan is classified as nonperforming when debt payments have not been made for 90 days.

“The higher income of banks was also due to higher trading gains and other investment income in view of the hefty gains in the global and local financial markets since November to December 2023,” Mr. Ricafort said.

Banks’ earnings from fees and commissions went up 12.4% to P138.637 billion from a year ago, while trading income climbed by 38.6% to P22.845 billion. Noninterest expenses rose by 13% year on year to P636.15 billion.

Noninterest expenses include compensation and fringe benefits, taxes and licenses, fees and commissions, and administrative expenses.

The operating income of Philippine banks grew by 11.9% to P1.13 trillion last year. Interest earnings rose by 39.7% to P1.27 trillion, while interest expense more than doubled to P366.254 billion.

The industry’s losses from financial assets slid by 5.8% to P83.465 billion. Provisions for credit losses fell by 12.8% to P91.83 billion, while bad debts written off plunged by 71.9% to P671.083 million.

The local banking industry’s assets increased by 9.1% to P25.147 trillion.

Possible policy rate cuts by the US Federal Reserve this year could lead to more trading gains and investment income for local lenders in the coming months, Mr. Ricafort said. Elevated interest rates in the Philippines and wider profit margins could also lead to higher earnings, he added.

The Fed raised rates by 525 basis points (bps) from March 2022 to July 2023, bringing its key interest rate to 5.25%-5.5%.

Back home, the Bangko Sentral ng Pilipinas raised interest rates by 450 bps from May 2022 to October 2023. It has kept the key rate at a 16-year high of 6.5% since November last year.

Meanwhile, banks’ bad loans could steady this year due to the delayed impact of BSP’s rate increases in the past year and the expected policy easing by the central bank, analysts said.

“These factors — the lagged impact of restrictive monetary policy and the anticipated easing of interest rates by the second half — may provide a cushion to nonperforming loans (NPLs) and cause levels to remain the same,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said in a Viber message.

BSP earlier said the full impact of the Monetary Board’s aggressive tightening might be felt this year, but authorities could still adjust borrowing costs if needed.

“The pause in policy interest rate adjustments has allowed the BSP to further observe and assess how firms and households continue to respond to tighter monetary policy conditions, as lagged effects of prior policy interest rate adjustments are expected to manifest fully in 2024,” BSP Governor Eli M. Remolona, Jr. said in his open letter to the President on Jan. 23.

“Rate cuts would help further ease the NPL ratio alongside improvements in business and overall economic conditions that would further improve borrowers’ ability to pay their debts as these become more affordable with lower interest rates,” Mr. Ricafort said.

Monetary policy easing could help contain debt pressures on companies and households, Mr. Asuncion said.

The central bank will hold its first policy meeting of the year on Feb. 15.

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