Bank earnings slump to 4-year low

MANILA, Philippines — The earnings of Philippine banks slumped to a four-year low, declining by 32.8 percent to P154.96 billion last year from a record P230.67 billion in 2019 as the industry’s provision for potential loan losses arising from the impact of the pandemic almost quadrupled, according to the Bangko Sentral ng Pilipinas (BSP).

Last year’s decline ended four straight years of profit growth for the banking sector and was the lowest since the P153.31 billion recorded in 2016. The industry’s earnings last contracted to P135.34 billion in 2015 from P135.57 billion in 2014.

Preliminary data from the BSP showed the industry’s operating income increased by 11.2 percent to P885.5 billion in 2020 from P796.26 billion in 2019.

Banks’ net interest income recorded a double-digit 10.4 percent increase to P668.17 billion in 2020 from P605.2 billion in 2019 as interest expense plunged by 370 percent to P175.19 billion from P280.53 billion, faster than the 4.7 percent dip in interest earnings to P844.23 billion from P886.02 billion.

Data from the BSP showed the industry’s non-interest income of Philippine banks grew by 13.7 percent to P217.33 billion in 2020 from P191.06 billion in 2109 as trading gains surged 54.8 percent to P112.96 billion from P72.96 billion, offsetting the 12.3 percent drop in fees and commission income to P88.48 billion from P100.91 billion.

The industry’s non-interest expenses slightly inched up to P485.09 billion in 2020 compared to P483.22 billion in 2019.

As more borrowers default on loan payments due to the impact of the pandemic, banks have been sacrificing earnings to raise provisions for credit losses on loans and other financial assets. Banks’ provisions for credit losses reached P210.89 billion last year, almost four times the P52.89 billion it allocated in 2019.

Meanwhile, BDO president and chief executive officer Nestor Tan earlier told The STAR it would take the industry two years to recover from the impact of the pandemic.

“We expect recovery in earnings in two years, as provisioning normalizes and banks benefit from the expected economic rebound,” Tan said.

Likewise, S&P Global Ratings said weak economic activity and tough employment conditions would likely hit the Philippine banking sector’s asset quality, earnings, and capitalization over the next two years.

The debt watcher sees a strong rebound this year with a 9.6 percent GDP growth followed by 7.6 percent next year, the fastest in Southeast Asia.