The banking sector’s profitability ratios declined in the second quarter this year despite improvement in banks’ operations.
Based on data from the Bangko Sentral ng Pilipinas (BSP), banks’ return on assets (ROA) and return on equity (ROE) decreased on a year-on-year basis although there is sustained profitability from the industry’s lending and investing activities during the period.
ROA, which is the percentage of net profit or loss to average assets, has remained steady at 1.47 percent which was the same rate in the end-March tally, but compared to same time in 2023, ROA was down from 1.56 percent. Total assets covered amounted to P26.194 trillion versus P23.295 trillion in 2023.
Banks’ ROE or the percentage of net profit or loss to average capital, also fell to 12.08 percent compared to 12.78 in the second quarter 2023 and 12.15 percent in the first quarter this year. Total capital covered was at P3.163 trillion, up from P2.861 trillion last year.
Meanwhile, banks’ cost-to-income ratio which measures banks’ efficiency in their operations, increased to 56.59 percent as of end-June from 55.45 percent same time last year. However, compared to the first quarter 2024, cost-to-income ratio was lower from 56.71 percent.
The BSP has said that cost-to-income ratio has been maintained at below 60 percent since the pandemic. This ratio ranged between 60.3 percent and 64.7 from 2015 to 2019 and 54.9 percent and 59.1 percent from 2020 to 2022. Cost-to-income ratio is the percentage of non-interest expenses, net of impairment losses, to total operating income.
In addition, banks generally have a satisfactory performance due to higher interest income from lending to private corporations and households, as well as investments in securities.
“This enabled banks to manage the corresponding increase in their funding and borrowing costs amid the high-interest-rate environment, complementing banks’ efficient management of their operating expenses,” said the BSP.
At the end of the second quarter, banks’ net interest margin (NIM) increased to 4.30 percent versus 3.81 percent same time in 2023. NIM is the percentage of net interest income to average earning assets. In the first quarter, NIM was lower at 4.21 percent compared to the end-June of 4.30 percent.
As for banks’ earning asset yield, this improved to 6.15 percent in the second quarter 2024 compared to 5.28 percent in 2023 and 5.99 percent in the first quarter this year.
Funding cost also increased to 2.11 percent in the second quarter this year from 1.47 percent same time in 2023, and 2.02 percent in the first quarter 2024.
Banks’ interest spread, taking into consideration the earning asset yield and funding cost, likewise increased to 4.05 percent from 3.81 percent in 2023 and 3.97 percent in the first quarter this year.
The percentage of interest income to average earning assets is the earning asset yield while the funding cost is the percentage of interest expenses to average interest-bearing liabilities. The difference between the two is the interest spread.
Both profitability metrics ROA and ROE continued to show Philippine banks’ resiliency amid the sustained expansion in assets, deposits, and profit, as well as stable capital, liquidity buffers and ample provision for credit losses.
Banks’ sustained profitability is supported by its high revenues from lending and investing activities and from the efficient management of operating expenses.
As of end-June, banks reported combined net profits of P190.211 billion, up by 4.07 percent from same time last year of P182.764 billion.
The cumulative net interest income which is the difference between interest income and the sum of provision for losses, rose by 15.43 percent to P505.382 billion compared to P437.840 billion same period in 2023.
As for banks’ non-interest income, this decreased by 8.84 percent to P104.470 billion versus P114.598 billion last year. This is fee-based income, gains on financial assets and liabilities, as well as foreign exchange profits, among others.
During the period, the banking system’s operating income rose 10.47 percent to P610.303 billion from P552.439 billion in 2023.