Banks’ Q1 net profit rises to P104.8 billion

THE PHILIPPINE banking sector booked a slightly higher combined net income in the first quarter despite the onset of the Middle East war, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Banks’ net profit grew by 2.86% to P104.816 billion in the first three months of the year from P101.903 billion in the comparable year-ago period, according to preliminary data.

The industry’s bottom line was boosted by the 1.87% year-on-year climb in universal and commercial banks’ earnings to P96.257 billion from P94.492 billion. This accounted for the bulk of the sector’s income for the period.

Thrift banks likewise posted higher net earnings in the first quarter, rising by 11.79% to P5.86 billion from P5.241 billion in the prior year. Rural and cooperative banks’ net profit climbed by 6.45% to P3.416 billion from P3.209 billion.

Meanwhile, the digital banking sector’s combined net loss narrowed by 30.96% to P717.71 million in the period from P1.04 billion a year ago.

Three of six BSP-licensed digital banks, namely, Tonik Digital Bank, Inc., Maya Bank, Inc. and Overseas Filipino Bank, Inc., earlier said they were profitable in the first quarter.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said banks’ profit growth is consistent with the Philippine economy’s continued expansion.

Higher earnings were supported by faster loan growth, which came as companies likely did “some hedging and frontloading of borrowings before interest rates go up further to fund purchases of materials and finished products before inflation goes up further,” he said.

In March, big banks’ outstanding loans grew by 10.7% to P14.603 trillion from P13.192 trillion in the prior year. This was the fastest annual increase in seven months.

The banking system’s net interest income increased by 12.44% year on year to P310.593 billion in the first quarter from P276.229 billion a year ago, BSP data showed.

This came as interest earnings rose by 7.93% year on year to P427.409 billion, while interest expense fell by 2.74% to P116.045 billion.

Meanwhile, the industry’s non-interest earnings edged down by 0.93% to P60.109 billion in the period from P60.673 billion last year.

This came as banks’ other income plunged by 93.56% to P822.071 million from P12.769 billion due to a combined net loss from foreign exchange transactions.

Income from fees and commissions went up by 6.79% to P47.622 billion from P44.594 billion, while trading income stood at P6.216 billion, a turnaround from the P1.169-billion loss in the previous year.

On the other hand, the sector’s non-interest expenses climbed by 8.73% year on year to P207.731 billion in the first quarter from P191.056 billion.

Banks spent more on compensation, taxes and licenses, fees and commissions, other administrative expenses, and amortization during the period. They likewise incurred higher impairment losses but recorded lower provisioning.

Losses on financial assets widened to P43.495 billion in the period from P29.828 billion a year earlier.

Mr. Ricafort said banks’ profitability may come under pressure in the coming months, especially as they become more cautious in their lending activities as the Middle East conflict could affect borrowers’ repayment capacity as it pushes up inflation, which may cause central banks to hike rates. This could result in higher nonperforming loans.

The war could also slow domestic demand and economic growth, which would also impact banks’ operating environment.

“Higher bond yields could lead to lower trading gains, also amid volatility in the global and local financial markets,” he said.

“Higher interest rates and more cautious lending standards amid slower global and local economic growth prospects could slow down demand for loans and other banking products.” 

The BSP has said that the war has minimal direct impact on the Philippine banking system as it has ample buffers to weather the crisis, although asset quality risks could emerge in specific areas, specifically fuel- and supply-chain-dependent sectors like transportation, manufacturing, wholesale and retail trade, construction, and utilities. — Katherine K. Chan