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April 12, 2024

Profits of Philippine banks rise 14.4% to P354.92 billion in 2023

The Philippine banking industry saw a substantial increase in combined net profits, reaching P354.925 billion in 2023, up by 14.45 percent from the previous year, on the back of higher interest income.

Data released by the Bangko Sentral ng Pilipinas (BSP) show that the surge in profits was fueled by robust growth in loans and investments. Banks amassed a net interest income of P906.871 billion in 2023, reflecting a 20.17-percent increase from P754.659 billion in 2022.

This income, derived from the variance between interest income and provisions for losses on accrued interest income from financial assets, along with interest expenses, underscores the industry’s financial buoyancy.

Non-interest income fell 15.76 percent to P218.932 billion from P259.888 billion in the preceding year. This category encompasses fee-based income, gains on financial assets and liabilities, as well as foreign exchange profits.

Operating expenses for the banking system totaled P636.149 billion in 2023, marking a 7.38-percent increase from the prior year’s P592.385 billion. These expenses comprise various components such as compensation, taxes, fees, and impairment losses.

Despite the challenges, total operating income climbed 10.94 percent to P1.125 trillion in 2023 from P1.014 trillion in 2022.

Combined losses and recoveries on financial assets experienced a 5.83-ppercent decline, amounting to P83.465 billion, down from P88.64 billion in the previous year. Notably, provision for credit losses decreased by 12.82 percent to P91.828 billion in 2023 from P105.33 billion in 2022.

Bad debts written off decreased significantly to P671 million, a 71.87 percent decline from P2.386 billion in 2022, reflecting banks’ efforts to streamline their balance sheets amid economic uncertainties.

Recoveries on charged-off assets dropped 52.65 percent to P9.033 billion from P19.077 billion in 2022, indicating challenges in recovering impaired financial assets.

Despite these fluctuations, the banking sector remains a cornerstone of the nation’s financial system, exhibiting resilience throughout the pandemic and post-Covid crisis period. Looking ahead, S&P Global Ratings anticipates continued profitability and stability in Philippine banks, buoyed by economic recovery and potential interest rate adjustments by the BSP.

In a report titled “Philippine Banks Outlook 2024: Better Economic Prospects Will Bolster Sector,” S&P credit analyst Nikita Anand expressed optimism. “We believe improving macroeconomic conditions will offer good growth opportunities along with stable asset quality,” Anand said.

Anand highlighted expectations for bank earnings to “normalize with lower asset yields,” anticipating a potential reduction in the BSP’s reverse repurchase (RRP) rate in the latter half of 2024 as inflation remains moderate.

“We believe policy rates could decrease in 2024 as inflation stays moderate,” Anand said.