THE Philippine banking system remained fundamentally sound in the second half of 2020, amid economic and business disruptions caused by mobility restrictions to curb the spread of Covid-19.
The Bangko Sentral ng Pilipinas (BSP) said in a report published over the weekend their recent comprehensive review showed that banks were able to weather the effects of the pandemic while ensuring relevant delivery of financial services crucial to the domestic economy.
In particular, the report said banks got passing grades on all five financial soundness indicators (FSIs) in the second half of 2020.
FSIs assess the banking system’s strengths and weaknesses. The BSP follows the International Monetary Fund (IMF) methodology of having a core set of FSIs identified under the headings of Capital adequacy, Asset quality, Earnings and profitability, Liquidity, and Sensitivity to market risk.
For capital adequacy, the banks’ capital adequacy ratio (CAR) hit an average of 17.1 percent as of end-December 2020. The minimum required by the BSP is 10 percent.
The system’s asset quality, as measured by the ratio of non-performing loans to the banks’ total loan portfolio, went up by 3.6 percent as of end-December 2020, higher than 2.6 percent in the previous semester and 2.1 percent in the same period last year.
“On the whole, Philippine banks have continued to rein in the NPL ratio within manageable level for more than 10 years, reflecting gains from prudent reforms and improvements in banks’ credit risk management systems,” the BSP said.
The BSP also noted that while the average net profit of the banking system declined during the pandemic due to decreased operating hours, overall the banking system remained profitable.
“Banking operations were affected by the pandemic as the net profit of the banking system shrank by 32.8 percent to P155 billion for the year ended December 2020,” the BSP said.
“Nonetheless, the positive bottom line mainly resulted from net interest income earned from lending activities,” it added. Meanwhile, the banking system’s liquidity and sensitivity to market risk also improved during the period.
“The Covid-19 pandemic tested the resilience of the banking system and the robustness of the financial ecosystem as the country reacted to the global health crisis. This novel crisis significantly affected the banking operations as the community quarantine and social distancing measures prompted banks to adjust their daily banking services,” BSP Governor Benjamin Diokno said.
“Moving forward, the BSP stands committed and ready with its enhanced onsite and off-site surveillance tools and prudential policy toolkit to promote the financial sector reform agenda for sustaining the sound and stable financial system conducive to a strong, dynamic and inclusive economic growth recovery for all Filipinos,” Diokno added.
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