A surge of optimism, fueled by a resurgence in capital expenditure, painted a vibrant picture for Philippine banks in the final quarter of 2024.
CreditSights, a leading financial research firm, declared a “generally strong” loan growth, with many institutions reporting a robust 6% to 9% quarter-on-quarter (QoQ) expansion. This surge, however, wasn’t a uniform wave, with banking giants BDO, Union Bank of the Philippines (UBP), and Philippine National Bank (PNB) charting their own, more subdued course.
The tale of net interest margins (NIM) proved a more complex narrative. The Bangko Sentral ng Pilipinas’ (BSP) strategic rate cuts, initiated in August, rippled through the sector, creating a mixed bag of results.
While some banks deftly navigated the changing landscape, others felt the pinch, highlighting the delicate balance between fostering growth and maintaining profitability.
Grading the performance of premiere PH banks
Beneath the surface of this apparent prosperity, however, whispers of caution began to emerge. The asset quality of the nation’s premier banks, while largely stable QoQ, started to reflect the burgeoning consumer lending that defined 2024.
The Bank of the Philippine Islands (BPI), a bellwether of the industry, revealed a non-performing loan (NPL) ratio of 2.13%, a notable 29 basis point (bp) increase compared to the previous year. Metrobank, another titan, saw its credit costs climb by a significant 62 bp in the latter half of 2024, signaling a potential shift in the credit risk landscape.
CreditSights, in a stark warning, pointed towards the vulnerabilities inherent in the second-tier banks. “Most of the second-tier banks continued to show weaker asset quality due to their growth pace and direction, as we have earlier forewarned,” the firm stated, casting a shadow over the sector’s broader health.
Rizal Commercial Banking Corporation (RCBC) stood out, with its NPL ratio climbing a worrying 57 bp QoQ. The credit costs for both RCBC and UBP skyrocketed by over 100 bp in Q4, a dramatic spike that demands close scrutiny. Security Bank, while still facing pressures, managed to keep its credit costs more contained at 98 bp.
The bedrock of stability, the Common Equity Tier 1 (CET1) ratios, remained comfortably high for BDO, Metrobank (MBT), UBP, and PNB. However, the rapid expansion of risk-weighted assets (RWA) at BPI (13.8%), RCBC (13.5%), and Security Bank (12.9%), as anticipated by CreditSights, began to nibble at their capital cushions. Liquidity metrics, thankfully, remained robust across the board, providing a buffer against potential shocks.
Unfolding narrative: Cautious optimism and emerging risks
The narrative unfolding in the Philippine banking sector is one of cautious optimism tempered by emerging risks. BDO, for one, had a stellar 2024, as it powered the growth of the industry with a remarkable 12% year-on-year surge in net income that translated into an PhP 82-billion profit surge.
The capital expenditure boom has undeniably injected vitality into the loan market, but the diverging trajectories of asset quality and credit costs raise crucial questions about the sustainability of this growth.
As the BSP navigates the delicate path of monetary policy, banks must remain vigilant, balancing expansion with prudent risk management.
The coming months will be critical in determining whether the sector can maintain its momentum while weathering the potential storms brewing on the horizon.
The industry must navigate the delicate balance of growth, profitability, and risk, as the nation’s financial landscape continues to evolve.