Thrift banks lead entire banking sector in income growth

MANILA, Philippines — The profit growth of mid-sized banks in the first half of the year outpaced the growth of the entire banking sector, reflecting its strong footing in extending loans and preserving the interest of depositors.

In a speech during the 2022 Annual Conference of the Chamber of Thrift Banks, Bangko Sentral ng Pilipinas Governor Felipe Medalla said the earnings of mid-sized banks jumped by 57.1 percent for the first half of the year, faster than the 16.7 percent increase recorded by the entire banking industry.

“But, of course, profitability is only one metric. Loan growth also continued to expand, indicating your key role in supporting households. Households remain the main driver of thrift banks’ operations,” Medalla said.

The credit growth of the thrift banking sector stood at 6.5 percent as of end June compared to the nine percent increase recorded by the entire banking system. In terms of deposits, it also recorded an increase of 3.9 percent versus the industry’s 7.5 percent.

“This segment holds the largest share of the industry’s loans and deposits. Even during the crisis, the industry continued to provide financing, mostly catered to individuals for household consumption, real estate, and wholesale and retail trade,” the BSP chief added.

In terms of capital buffer, Medalla pointed out that the industry recorded a capital adequacy ratio (CAR) of 19 percent compared to the entire banking sector’s 16.2 percent.

Its assets expanded by 4.5 percent, slower than the industry’s 7.8 percent.

Mid-sized banks also booked a higher non-performing loan (NPL) ratio of 7.8 percent as of end June, versus the sector’s 3.6 percent. It’s NPL cover of 63.2 percent was also lower than the industry’s 97.1 percent.

According to Medalla, the Philippine banking system is on strong footing, with growing assets, loans, and deposits; sustained profitability; ample capital and liquidity buffers; and more than enough coverage for bad loans.

“In short, you have a banking system that’s growing steadily without sacrificing the stability of the system, and at the same time, preserving depositor interests,” the BSP chief said.

As regulator of banks, Medalla pointed out that the BSP did its part to adopt enhanced and forward-looking supervisory frameworks and policy reforms, and prudential standards that would strengthen corporate and risk governance, advance digital transformation and broader access to financial services, uphold the financial system integrity and advance sustainable finance.

Medalla said the latest Banking Sector Outlook Survey (BSOS) showed that the outlook on the entire banking system remains stable, with expectations of double-digit growth in assets, loans, deposits, and net income for 2022 to 2023.

“Rest assured that the BSP will continue to foster an enabling environment that allows the financial institutions under our supervision to contribute to our three pillars of price stability, financial stability, and a safe, secure, and efficient payments and settlements system, while supporting economic growth,” Medalla added.