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By Maricel E. Burgonio, Reporter
PROFITABILITY at Philippine banks is expected to
remain low vis-à-vis those in other emerging markets due to a
relatively big exposure to government debt and the high share of bad
loans, the International Monetary Fund (IMF) said.
In a report, the IMF said local banks’
non-performing loans accounted for 7 percent of their total
portfolios, or almost twice the emerging market average of 3.8
percent.
“Despite the impressive progress in reducing
non-performing assets, banks will struggle with low
profitability,” the report said.
According to the latest Bangko Sentral ng
Pilipinas (BSP) report, the non-performing loan ratio of domestic
banks reached 4.45 percent last year, lower than the 5.66 percent in
2006. For thrift banks, the average went down to 6.87 percent last
year from 8.25 percent previously.
The Special Purpose Vehicle Act (SPV) helped
banks further reduce their bad assets for the past four years, but
in terms of their return on assets, local lenders averaged 0.9
percent last year, lower than the 1.7 percent average for emerging
markets.
“The rate of return on assets remains low, as
[a] large number of banks have difficulty determining good credit
risks,” the IMF said.
The share of public debt exposed to exchange
risk, which is 36.4 percent, is also well above the emerging market
average of 16.3 percent.
With large holdings of sovereign debt, local
banks lost over $100 million when spreads increased sharply in
end-July last year, the report said.
While losses were subsequently recouped, the IMF
said banks could suffer more significantly if spreads again widened.
Furthermore, the sustainability of the
country’s public sector debt depends largely on the strength of
future tax reforms, according to the IMF. The government’s
reduction of the corporate income tax in 2009 is the only tax reform
measure in the medium term.
In effect, this will reflect in a decline in
non-financial public sector debt, which will remain high at 43
percent of gross domestic product (GDP) in 2013 from 62.3 percent
last, based on IMF’s debt sustainability analysis.
The IMF said the maturity of public debt remains
tilted toward the short-end, almost three times the emerging market
average. This renders the country’s debt dynamics vulnerable to
deterioration in investor sentiment.
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