Philippine banks continue to rebalance investment portfolio

MANILA, Philippines – Philippine banks continued to rebalance their portfolio investments to insulate profitability from mark-to-market losses due to the volatile global markets. 

Based on its second semester 2015 status report on the Philippine Financial System, the Bangko Sentral ng Pilipinas (BSP) said there were notable shifts in the investment portfolio of banks during the period as financial assets booked at fair value decreased. 

Data showed the total assets of banks rose 8.3 percent to P12.1 trillion last year from P11.16 trillion in 2013 due to the gradual increase in deposits and capital. Deposits rose 8.3 percent to P9.23 trillion, while capital inched up by 2.7 percent to P1.4 trillion from fresh infusion and earnings. 

The BSP said the bank’s financial assets were largely in the form of debt securities at 88.6 percent or P2.4 trillion.

Statistics showed financial assets held-for-trading plunged 40 percent or P129 billion while those designated at fair value through profit and loss (DFVPL) fell 36.8 percent or P2 billion. 

“These are non-trivial amounts because the declines represent 40 percent and 37 percent of their 2014 balances,” the BSP said. 

In contrast, financial assets classified as held-to-maturity increased 38.1 percent or P315.6 billion to P1.14 trillion. 

This resulted in banks’ held-to-maturity almost approximating the balance of P1.04 trillion in available for sale (AFS) financial assets.  

“The significant re-balancing of the banks’ portfolio investments resulted to insulation from mark-to-market loss brought about by short-term fluctuations in interest rates,” the BSP said.

 Portfolio investments were peso-denominated at 53.3 percent share or P1.32 trillion and 46.7 percent dollar-denominated or P1.16 trillion.

In terms of counterparty, government-issued securities represented a sizeable share of 65.4 percent or P1.62 trillion followed by resident corporations at 11.4 percent or P283.8 billion and non-resident central government/banks at 10.1 percent or P249.6 billion. 

The BSP said the Philippine banking system in 2015 faced a challenging environment with risks shifting from advanced economies to emerging market economies. 

Risks arising from the confluence of external factors such as diverging monetary policies and slowdown in global growth particularly, China’s economic activities affected banks’ profitability and financial position. 

To manage emerging risks consequently, banks rebalanced their asset portfolio and relied on more lending sustaining a positive performance.