HAPPY DAYS for PH BANKS

“In 2010, the economy grew by 7.3 percent, the best in a quarter century (vs. 1.1 percent 2009). Economic output reached P8.5 trillion for the first time. Also, there was election spending and euphoria and optimism with the election of new president, an honest one… With all that money and optimism, naturally money flowed into the banking system."

By: Tony Lopez

Banks made record profits last year. They also scored tremendous gains in resources, deposits, loan volume, and capital. These figures are at their record high levels. That’s why our bankers sport happy faces.

That’s the good news.

The bad news is that banks will charge you more, with higher interest rates and fees, this year and even higher, next year. That’s why our bankers will look even happier this year.

As a depositor though, you should demand from your bank higher yields. Banking has become very competitive. As a borrower, you should contest the higher interest rates. Banks are awash with so much cash they don’t know what to do with it.

The money came from OFW remittances which amounted to $18.3 billion last year or P823 billion – equivalent to half of the national budget.

Foreign reserves rose to $62.4 billion, thanks to strong exports and remittances. We have more dollars than the Bangko Sentral can handle. Why doesn’t the BSP funnel that money to development?

In 2010, the economy grew by 7.3 percent, the best in a quarter century (vs. 1.1 percent 2009). Economic output reached P8.5 trillion for the first time. Also, there was election spending and euphoria and optimism with the election of new president, an honest one.

With all that money and optimism, naturally money flowed into the banking system.

The Philippine banking industry scored soaring gains in profits, assets, deposits and loans to end 2010 with record profits, assets, deposits, loans and networth.

Total resources of the system (37 reporting banks) climbed to P6,564.78 billion (P6.56 trillion), up a scintillating P736.65 billion or 12.64percent; deposits to P4,816 billion (P4.8 trillion), up P446 billion or 10.21 percent, and loans to P2,589.97 billion (P2.589 trillion), up P205.73 billion or 8.63 percent.

With higher profitability, return on equity (profits over capital) improved by 23.4 percent to 8.47 percent in 2010 from 6.86 percent in 2009. Bank of PI President Aurelio Montinola estimates banking industry profits at P91 billion or 31 percent above 2009’s.
Awash with cash and profits, the banks also boosted their networth to a record P641.49 billion, up P95.59 billion or 17.51 percent from 2009.

Loan loss reserves of banks in 2010 increased slightly by P4.4 billion or 4.01 percent, half the P8.7 billion or 8.26 percent increase in provisioning in 2009, indicating higher confidence by the banks of not incurring losses from non-repayment of loans.

Banco de Oro Chair Teresita Sy-Coson recites the growth factors of 2010 and the reasons why the banks made so much money last year: “Externally, declining rates, plus lots of optimism from the (May) elections, and the good growth prospects for the Philippines.” Exports recovered mightily in 2010, rising by 33.8 percent, outpacing the 26.9percent rise in imports.

The banks lent PP205.7 billion more in 2010, more than double the P98.8 billion expansion in lending in 2009. They also tended to extend loans rather than merely buy government securities. Growth in investment securities in 2010 was P179.75 billion, or 13.07percent, slower than the P205.62 billion or 17.59percent increase in 2009.

Ayala-managed Bank of PI paced the industry in growth. Its resources increased a whopping P153.7 billion to P878.1 billion, up 21.2 percent ―infinitely better than the industry’s 12.64 percent growth.
BPI deposits grew by P140.3 billion or 24.2 percent, more than double industry’s 10.21 percent growth rate. Loans expanded by P76.8 billion or 21.79 percent (vs. 8.63 percent for the whole banking industry). Capital funds rose to P82.3 billion, up P14.5 billion or 21.4 percent (17.51 percent for the industry).

BPI’s net income was a stupendous P11.31 billion―the best in its 159-year history and up 33 percent over 2009. BPI has 13.22percent of total industry assets, 14.96 percent of deposits, and 14.77 percent of gross loan portfolio.

Not to be outdone, BDO, retailing magnate Henry Sy’s giant bank, increased profits 48.3 percent to P8.9 billion. Says Chair Tessie Sy: “Operating income was up 13 percent from 15 percent loan growth, coupled with good trading and fee income from service businesses. Growth in operating expenses was contained to 8 percent with effective cost management.”

George Ty’s Metrobank managed by son Arthur Ty, recorded P8.4 billion net, up 39.5 percent. Lucio Tan’s Philippine National Bank chalked up P3.54 billion in profits, up 68.5 percent.

Al Yuchengco’s Rizal Commercial Banking Corp. had its most profitable year ever, P4.2 5 billion, up 65.3 percent.

Moving forward, “most banks will go after consumer loans, SME loans and fee-based income from trust, asset and wealth management,” predicts Lorenzo Tan, president and CEO of RCBC. “Markets are very liquid with SDAs (deposits) reaching P1.5 trillion. Trading gains are very tough,” he says. Interest rates could be up another 25 basis points by yearend, he surmises.

RCBC, Tan says, “will focus on reducing cost to income ratio, building microfinance and global transaction service businesses. We will finish Tier 1 capital raising of P6 billion end of second quarter.”

Lending rates will be higher. “The market views further increases in BSP overnight rate of up to 50 bps by the end of 2011,” relates DBP President Francisco del Rosario. “We can expect interest rates to increase within the next two years to catch up with the BSP’s decade overnight average of 7.0 percent from today’s 4.5 percent only.”