The Report on the Philippine Financial System for the first semester of 2019 highlights the sustained soundness and stability of the banking industry in line with domestic economic expansion and positive outlook of the industry players.

The positive performance of the banking system was evinced by sustained growth in assets, loans, deposits and capital that was evident across banking groups. The universal and commercial banks (UKBs) channeled resources mostly to loans and investments in line with the country's improving macroeconomic environment, business climate and consumer sentiment. Meanwhile, thrift banks (TBs), and rural and cooperative banks (RCBs) allocated most of resources for lending to agriculture and consumer-related markets.

The financial soundness indicators (FSI) affirmed that the banking system is stable and resilient despite global uncertainties. Capital, mainly comprised of common equity and retained earnings, remained well-above domestic and global benchmarks. Credit quality was satisfactory amid double-digit loan growth. Profits generated from core income were also robust. Banks' liquidity was sufficient to facilitate short-term conversion of assets while adequately providing for the medium- and long-term financing needs of the growing economy. The BSP's proactive engagement with supervised financial institutions is expected to supplement its close monitoring and surveillance activities to mitigate the consequent risks from banks' operating environment.

Moreover, the foreign currency deposit system, trust operations, quasi-banks and other non-bank financial institutions all registered steady growth. The Report included a new section on pawnshops and money service businesses (MSBs), highlighting that these have become major financial service access points to help the financial inclusion objectives of the BSP.

Overall, the Philippine financial system continued to exhibit sustained resilience against external vulnerabilities. Moving forward, there is also merit in better understanding the impact of climate change on the banking sector (Box Article 1) and the role of financial institutions in promoting sustainable finance (Box Article 2). Box Article 1 examined the impact of extreme weather episodes on the Philippine banking sector using regional branch-level data. Meantime, Box Article 2 discussed the role of financial institutions in addressing climate change and environmental risks through sustainable finance. The BSP also commits to continue to create a supportive regulatory and supervisory environment that allows innovations to flourish, ensures that risks are effectively managed, protects consumer welfare, and promotes financial inclusion.

Source: Bangko Sentral ng Pilipinas (BSP)