The local banking sector posted combined net profits of P270.352 billion in the first nine months of 2023, up by 10.4 percent from same period last year of P244.875 billion as loans, deposits and income continued to grow.

Based on Bangko Sentral ng Pilipinas (BSP) data released on Tuesday, Nov. 14, the increase in banks' net income was largely due to their cumulative net interest income, which increased by 20.44 percent year-on-year to P663.24 billion from P550.666 billion at the end of the third quarter period. This income is the difference between interest income and the sum of provision for losses on accrued interest income from financial assets and interest expense.

Banks’ non-interest income, however, fell by 21.31 percent to P165.406 billion from P210.210 billion same period in 2022. Since this is fee-based income, gains on financial assets and liabilities, as well as foreign exchange profits, among others, the high-interest rate environment has an impact on its performance.

As of end-September, the banking system’s non-interest expenses totaled P462.601 billion which was 12.2 percent higher than the previous year’s P412.357 billion. These are compensation and fringe benefits, taxes and licenses, fees and commissions, and impairment losses and provisions.

Operating income also increased by 8.9 percent to P828.646 billion versus P760.876 billion same time in 2022.

As for banks’ combined losses and recoveries on financial assets, this improved to P58.917 billion, down 6.5 percent from P63.005 billion, of which provision for credit losses amounted to P66.187 billion, 15.12 percent lower from same period in 2022 of P77.978 billion.

Meanwhile, bad debts written off likewise declined by a significant 80 percent to P457.883 million compared to P2.301 billion end-September 2022. Writing off bad debts which are non-performing loans enable banks to clear their balance sheets as these are considered uncollectable debts.

Recoveries on charged off assets also decreased 55.27 percent to P7.727 billion from P17.275 billion last year. These are banks’ collection of accounts or recovery from impairment of charged-off financial assets and financial assets provided with allowance for credit losses.

The local banking system is the core of the financial system. All throughout the pandemic and post-Covid crisis, the industry continued to grow its assets, loans, deposits, and profit.

In a BSP report assessing the first six-month condition of the domestic financial system, it noted that banks continue to report high funding costs which affected their overall operations while the high interest environment affected its net interest income ratio.

Still, combined net profits remain in double-digit growth amid banks’ mixed levels of optimism on the country’s economic prospects but the overall outlook for the banking system is stable, said the BSP.

Besides strong growth in investments, the banking sector also showed growth in lending which has been previously reported, and deposits in the first half of the year.

Bank deposits funded the key activities of banks such as lending and investing. As of end-June, the total deposits increased 8.1 percent year-on-year to P17.8 trillion.

With adequate resources, deposits and earnings, the BSP said banks remain well capitalized and highly liquid, with a capital adequacy ratio and key liquidity ratios exceeding the BSP regulatory and international standards.