Philippine Major Banks Show Robust Asset Growth Amidst Slowing Loan Expansion in Q3

In a significant fiscal development, the Philippines' major banks have collectively exhibited a robust increase in assets, despite facing a deceleration in the growth of loan issuance in the third quarter of the year. Recent data indicates a noteworthy 8.78% year-on-year surge in assets of the country's primary financial institutions.

Asset Expansion Outpaces Loan Growth

The assets of 45 universal and commercial banks in the Philippines expanded to reach P23.37 trillion, marking a slightly accelerated growth compared to the 8.38% increase observed in the past year and the 8.76% growth in the preceding quarter. This growth trajectory signifies the quickest asset escalation within the past two quarters, outpacing the 11.25% growth in the year's initial months.

Lending Pace Slows Amid High Interest Rates

The uptick in the banks' assets is juxtaposed with a tempered rise in total loans, which edged up by 7.01% to P11.44 trillion in the third quarter. This rate of increase is more conservative than the 9.74% growth reported in the previous year, marking the slowest pace in six quarters since a 6.21% rise in early 2022.

One influence on the lending slowdown is the heightened borrowing costs. The central bank's key policy rate was maintained at a nearly 16-year peak of 6.25% during the quarter, potentially deterring prospective borrowers. Following an off-cycle adjustment, the benchmark rate was pushed to 6.5% due to a 25 basis point hike. Over the period from May 2022 to October 2023, the cumulative increase in borrowing costs reached 450 basis points.

NPLs Increase Yet Asset Quality Improves

Nonperforming loans (NPLs), often identified as bad loans, rose by 6.8% to P374.27 billion from last year. This elevated the NPL ratio—bad loans as a portion of the total loan portfolio—to 3.62% from 2.91%. Despite this increase, the overall asset quality saw an improvement, with the nonperforming asset (NPA) ratio declining to 0.89% from the previous 1.1%.

The banking sector also observed a hike in loan loss reserves by 8.4% to P413.09 billion. Banks maintained strong capital cushions with median capital adequacy ratios (CAR) reaching 21.54%, comfortably above regulatory requirements.

Benchmarks of Success

Return on equity (RoE), a profitability metric, saw a rise to 9.42% from 6.42% a year ago, indicating improved returns for shareholders. As for the scale of operations, BDO Unibank, Inc. led with the largest asset base, followed by Metropolitan Bank & Trust Co. and Land Bank of the Philippines. BDO also spearheaded the lending market.

When it comes to aggressive annual asset growth, China Banking Corp. took the lead followed by Philippine Bank of Communications and Rizal Commercial Banking Corp. Standard Chartered Bank emerged as the most aggressive lender followed by Bank of Commerce and East West Banking Corp.

banks, assets, lending