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FOREIGN banks in the Philippines incurred a single-digit decline in
their combined profits last year, due to the low interest
environment and conservative lending.
In a statement, the Bangko Sentral ng Pilipinas
(BSP) said foreign lenders’ net income after tax dropped by 7.4
percent year on year to P11.1 billion last year due to narrowed
interest margins brought about by declining interest rates.
The peso, which appreciated last year, also
resulted in lower income on foreign currency denominated assets. The
adoption of new financial reporting standards and risk management
standards also had the same effect on profitability.
“The financial turmoil triggered by the US
subprime mortgage problem, rising oil prices and the impending
recession in the US fueled uncertainties about the global economic
outlook and business prospects for banks worldwide,” the BSP said.
As a result, their return-on-assets (ROA)
weakened to 1.7 percent last year from 2.0 percent in 2006 while
their return-on-equity (ROE) declined to 11.9 percent from 13.2
percent. ROA measures the earning power of every peso of asset a
bank deploys, while ROE measures the shareholder’s return on their
investment.
Despite their weaker financial performance,
foreign banks remained generally sound during the year, as their
total resources reached an all-time high of P676.2 billion, a
4.4-percent year on year growth.
“Foreign banks bested their domestic
counterparts in terms of asset quality and solvency as their
performance ratios remained well-above industry average,” the BSP
said.
Their combined capital adequacy ratio however
fell to 21.4 percent as of September last year from 25.9 percent
previously.
They also performed an active role in
facilitating the inflow of foreign investments, and in providing a
wider variety of financial services.
Foreign banks’ resources remained principally
funded by deposit liabilities and channeled mostly to loans and cash
and due from banks.
Their loans-to-deposits ratio slightly increased
to 83.5 percent from 82.3 percent in 2006. On the other hand, cash
and due from banks-to-deposits ratio slid to 29.1 percent from 30.4
percent.
In terms of credit concentration, the financial
intermediation sector was still the main beneficiary of foreign
banks’ loans which accounted for 48.7 percent, or P176.6 billion
of the industry’s total loan portfolio.
The private households with employed persons
sector accounted for 17.1 percent, or P62.2 billion on the back of
sustained growth of consumer loans specifically credit card
receivables, which remained the turf of foreign banks.
The manufacturing sector came in third at 10.9
percent but credit exposures to the sector declined by 16.8 percent,
or P8.2 billion as a result of improved capability of corporates to
source funds from the capital market.
Loans to these sectors comprised 76.7 percent,
or P278.5 billion of total loans.
The BSP said a conservative lending strategy and
continued efforts to clean up their balance sheets further brought
down non-performing loans by 8.8 percent to P6.1 billion. This
further improved their bad loan ratio to 1.7 percent from 1.9
percent previously.
Twenty-two foreign banks operated in the
Philippines last year. Of these, 17 were universal or commercial
banks and 5 were thrift lenders.
-- Maricel E. Burgonio
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