PHL banks expect to remain fundamentally strong amid projected rise in interest rates

January 24, 2014 4:27 am 

By Joann Santiago

MANILA, Jan 23 (PNA) — Tapering of the Federal Reserve’s stimulus program has signalled the start of rise of interest rates not only in the Philippines but globally.

For one, investors have been bidding for higher yields for government securities as seen in the auction for treasury bond (T-bond) and treasury bills (T-bills) this month.

Average rate of the Philippine government’s 92-day and 364-day Treasury bills (T-bills) rose during an auction early this month with the three-month paper’s yield rising to 0.693 percent from the record-low of 0.001 percent last November.

It is the same with the one-year bill after interest rate averaged at 1.079 percent, up from the 0.278 percent last November.

Relatively, rate of the three-year T-bond rose to 2.39 percent during an auction last Tuesday. This is higher than the 2.054 percent the same tenor fetched on July 15 last year.

National Treasurer Rosalia de Leon attributed the investors’ decision to ask for higher interest rates to uptick in domestic inflation as well as expectations for further tapering of the Federal Reserve’s stimulus program.

The rise in interest rates are seen to hurt banks’ income during the year but industry players said these could be countered by focusing more on core business, which is deposit-taking and the loan business.

Earlier, Banco de Oro Unibank Inc. (BDO) President and chief executive officer (CEO) Nestor Tan said the banking industry in the country remains healthy and well-capitalized.

He said the lending business of the financial institutions remain robust and are not facing problems such as those faced by some of its counterparts overseas because of prudent management and regulations set by the central bank.

He earlier expected lower trading gains this year on expectations of interest rate increase but cited that bottomline would be supported by core income.

Relatively, Bank of the Philippine Island (BPI) President and CEO Cesar Consing said banks would rely more on the deposit and lending business as interest income are expected to go down.

He projects loan business of banks to remain strong because of the increasing requirements of the domestic economy.

Regulators have the same outlook on the banking system, thus, it continues to encourage banks to continuously firm up its assets.

BSP Deputy Governor Nestor Espenilla Jr. said “interest rate is something we always review.”

“We always encourage banks to boost capital in good times,” he said stressing that monetary officials are “quite comfortable with the things are.”

Last December, the Federal Open Market Committee (FOMC) decided to cut by US$ 10 billion the Federal Reserve’s monthly US$ 85 billion securities purchases after noting the continued improvement of the world’s largest economy.

The cut in the Fed’s third quantitative easing (QE3) program took effect this month.

Espenilla explained that even with the cut in the Fed’s stimulus program Philippine banks “are stable.”

“Some of them will experience lower-than-projected income because of the movement of interest rates (but) it has no bearing on the fundamental strength of the bank,” he said.

The central bank official said loan growth is projected to remain strong this year.

“Credit will continue to grow strongly and profitably because asset quality is good, debt losses is minimal,” he added.

Central bank data show that as of last October, non-performing loan (NPL) ratio of universal and commercial banks (U/KBs) remain low at 2.56 percent of their total loan portfolio (TLP) despite the rise of total loans to P3.93 trillion.

Also, NPL coverage ratio widened to 130.53 percent from year-ago’s 126.23 percent.

The central bank pointed that that “banks’ low level of bad debts is an indication of the industry’s continuous effort to adhere to prudent lending standards.”

“This is essential to maintaining financial stability, which is a primary objective of the Bangko Sentral ng Pilipinas,” it added. (PNA)

CTB/JS/UTB

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