Foreign banks reverse losses, earn P6.8 billion in 2021

MANILA, Philippines — Foreign banks operating in the Philippines posted a net income of P6.8 billion last year, reversing the P1 billion net loss recorded in 2020.

The Bangko Sentral ng Pilipinas said that the return to profitability of foreign banks was due to collection and recovery from impairment of financial assets previously provided with allowance for credit losses, which account for 10.8 percent of the net income.

Despite the rebound, foreign banks operating in the country have yet to return to pre-pandemic profitability levels as they booked a net income of P18.6 billion in 2019.

The total operating income of foreign banks operating in the country declined by 13.9 percent to P54.4 billion in 2021 from P63.2 billion in 2020. This remains in contrast to the 15 percent growth to P72.7 billion in 2019.

“The decline in operating income is expected amid the low interest rate environment and tepid loan demand,” the BSP said.

The sector’s net interest margin (NIM) went down to 2.6 percent from 3.5 percent in 2020 and 4.2 percent in 2019 amid the reduction in net interest income.

Foreign banks’ net interest income fell by 20.5 percent to P34.5 billion from P43.4 billion.

The cost-to-income ratio improved to 79.1 percent from 67.8 percent due to the continuing investments of foreign banks in banking infrastructure, enhancements to risk management systems as well as programs to develop human capital.

The industry’s return on assets (ROA) stood at 0.5 percent, a reversal of the -0.1 percent posted in 2020 but lower than the 1.5 percent recorded in 2019.

Likewise, return on equity (ROE) also inched up to 2.9 percent from -0.4 percent but remained lower than the 8.9 percent recorded in 2019.

The BSP said recoveries on financial assets amounted to P700 million in 2021, a reversal of the P18.9 billion losses booked in 2020.

The central bank also reported that the total assets of the branches and subsidiaries of foreign banks went up by 6.2 percent to P1.39 trillion and accounted for 6.7 percent of the total resources of the Philippine banking system.

Deposits remained the principal funding source, rising by 6.6 percent to P887.4 billion and accounting for 76.2 percent of the industry’s funding source.

According to the BSP, the loan book of foreign banks inched up to P656.3 billion in 2021, turning around from the 15.4 percent contraction in 2020.

Amid growing loans, foreign banks’ non-performing loan (NPL) ratio improved to 1.9 percent in 2021 from 2.7 percent in 2020 but still higher than the pre-pandemic record of 1.2 percent in 2019.

The total capital of foreign banks slipped to P232.2 billion in 2021 from P232.9 billion in 2020 due to the decrease in accumulated earnings.

Despite this, the group’s capital adequacy ratio stood at 25.2 percent in end-September, well above the 10 percent threshold of the BSP and the eight percent set by the Bank for International Settlements (BIS).

There are 24 foreign bank branches and five foreign bank subsidiaries operating in the Philippines.