bsp2018 PDF

This semestral report is prepared pursuant to Section 39(c), Article V of Republic Act (R.A.) No.
7653 (The New

Central Bank Act), R.A. No. 7906 (Thrift Bank Act of 1995), R.A. No. 7353 (Rural Bank Act of 1992), as amended by
R.A. No. 10574, R.A. No. 6426 (Foreign Currency Deposit Act of 1972), R.A. No. 8367 (Revised Non-Stock Savings
and Loans Association of 1997), and R.A. No. 10000 (Agri-Agra Reform Act of 2009), by the Office of Supervisory
Policy Development, Financial Supervision Sector, Bangko Sentral ng Pilipinas.
A copy of the report is available online at http://www.bsp.gov.ph.
Table of Contents
Page Number
Glossary of Terms i
Prologue vii
1
The Banking Sector
Broad Financial Landscape 3
Box Article No. 1: What is Driving the Behavior of Deposit Interest Rate 12
in the Philippines?
Financial Soundness of Philippine Banks 19
Box Article No. 2: Does Expansion of Bank Lending Lead to Weakening 24
of Loan Quality?
Foreign Currency Deposit Unit (FCDU) System 32

Trust Operations 24 36
The Non-Bank Financial Institutions

Non-Bank Financial Institutions with Quasi-Banking Functions 41
Non-Stock Savings and Loan Associations 44
Summary and Policy Direction 48
Appendices
Glossary of Terms
Glossary of Terms1
A. FINANCIAL TERMS
1
1. Allowance on Non-Performing Assets (NPAs) refers to the sum of allowance for credit losses on non-
performning loans, allowance for credit losses on non-performing Sales Contract Receivables (SCR),
allowance for losses on Real and Other Properties Acquired (ROPA) and allowance for losses on Non-
Current Assets Held for Sale (NCAHS).
2. Average of accounts. For purposes of computing the average, one period covers 12 months.
a. Average assets refer to the sum of total assets as of end of two periods divided by 2.
b. Average capital refer to the sum of total capital accounts as of end of two periods divided by 2.
c. Average earning assets refer to the sum of earning assets as of end of two periods divided by 2.
d. Average interest-bearing liabilities refer to the sum of interest-bearing liabilities as of end of two
periods divided by 2.
3. Branch-lite Unit refers to any permanent office or place of business of a bank, other than its head office
or a branch. A branch-lite unit performs limited banking activities and records its transactions in the books
of the head office or the branch to which it is annexed.
4. Capital Conservation Buffer refers to the 2.5 percent of common equity tier 1 (CET1) capital required of
universal banks/commercial banks (UBs/KBs) and their subsidiary banks/quasi-banks (QBs) that is meant
to promote the conservation of capital and build-up of adequate cushion that can be drawn down by
banks to absorb losses during periods of financial and economic stress.
5. Common Equity Tier 1 (CET1) Capital for domestic banks, consists of paid up common stock, common
stock dividend distributable, additional paid-in capital, deposit for stock subscription, retained earnings,
undivided profits, other comprehensive income and minority interest in subsidiary banks, subject to
regulatory adjustments. For branches of foreign banks, this consists of permanently assigned capital,
undivided profits, retained earnings, accumulated net earnings and other comprehensive income, subject
to regulatory adjustments.
6. Derivative refers to a financial instrument or other contract with all of the following characteristics:
(a) its value changes in response to the change in a specified interest rate, financial instrument price,
commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other
variable, provided in the case of a non-financial variable that the variable is not specific to a party to
the contract (sometimes called the underlying);
(b) it requires no initial net investment or an initial net investment that is smaller than would be required
for other types of contracts that would be expected to have a similar response to changes in market
factors; and
(c) it is settled at a future date.
7. Distressed Assets refer to the sum of non-performing loans (NPLs) and ROPA, gross, NCAHS and
performing restructured loans replacing the current restructured loans.
8. Dividend Income refers to cash dividends earned and/or actually collected on equity securities held as
Held-for-Trading (HFT), Designated at Fair Value Through Profit or Loss (DFVPL), Available-for-Sale (AFS)
and Investments in Non-Marketable Equity Securities (INMES).
9. Earning Assets refer to the sum of Due from Bangko Sentral ng Pilipinas (BSP), Due from Other Banks,
Financial Assets-Debt Securities (net of allowance), Financial Assets HFT-derivatives with positive fair
value HFT-interest rate contracts (stand‑alone and embedded), derivatives with positive fair value HFT-
interest rate contracts (stand-alone and embedded) and total loan portfolio (TLP) inclusive of interbank
1 Definitions provided are in the context of this Report.
Financial Supervision Sector i

First Semester 2018
loans (IBL) and Loans and Receivables Arising from Repurchase Agreements, Certificates of Assignment/
Participation with Recourse and Securities Lending and Borrowing Transactions (RRPs), net of allowance.
10. Equity Investments refer to equity investments in subsidiaries, associates and joint ventures.
11. Embedded Derivative refers to a component of a hybrid (combined) instrument that also includes a
non-derivative host contract – with the effect that some of the cash flows of the combined instrument
vary in a way similar to stand-alone derivative. An embedded derivative causes some or all of the cash
flows that otherwise would be required by the contract to be modified according to a specified interest
rate, financial instrument price, foreign exchange rate, index of prices or rates, credit rating or credit
index, or other variable, provided in the case of a non-financial variable that the variable is not specific
to a party to the contract.
12. Fee-based Income refers to the sum of income from payment services, intermediation services,
custodianship, underwriting and securities dealership, securitization activities, fiduciary activities and
other fee-based income.
13. Financial Assets (Other than Loans and Receivables) refer to the sum of all investments in financial
assets, net of direct equity investments. These include financial assets HFT, DFVPL, AFS, Held-to-Maturity
(HTM), unquoted debt securities classified as loans (UDSCL) and INMES.
14. Financial Inclusion is a state wherein there is effective access to a wide range of financial services for
all. Effective access does not only mean that there are financial products and services that are available.
These products and services must be appropriately designed, of good quality and relevant to benefit
the person accessing the said service. Wide range of financial services refers to a full set of products such
as savings, credit, insurance, payments and remittance services for different market segments,
particularly those that are traditionally underserved or unserved.
15. Financial Liabilities Designated at Fair Value Through Profit or Loss (DFVPL) refer to financial
liabilities that upon initial recognition are designated by the bank at fair value through profit or loss.
16. Financial Liabilities Held for Trading (HFT) refer to the sum of derivatives with negative fair value HFT
and liability for short position.
17. Financial Reporting Package (FRP) is a set of financial statements for prudential reporting purposes
composed of the Balance Sheet, Income Statement and Supporting Schedules. The FRP is primarily
designed to align the BSP reportorial requirements with the provisions of the Philippine Financial
Reporting Standards (PFRS)/Philippine Accounting Standards (PAS) and Basel Capital Adequacy
Framework. It is also designed to meet BSP’s statistical requirements.
18. Financial Technology (Fintech) refers to the integration of finance and technology in a manner that
drives the transformation or disruption of the traditional processes in financial service delivery. New
business models driven by fintech can create new risks in different segments of the financial system or
accentuate some existing risks. The Financial Stability Board (FSB) defines fintech as “technologically
enabled financial innovation that could result in new business models, applications, processes or
products with an associated material effect on financial markets and institutions and the provision of
financial services”.
19. Foreign Currency Deposit Unit (FCDU) and Expanded Foreign Currency Deposit Unit (EFCDU) refers
to a unit of a local bank or of a local branch of a foreign bank authorized by the BSP to engage in foreign
currency-denominated transactions, pursuant to the provisions of Republic Act No. 6426 (Foreign
Currency Deposit Act of the Philippines), as amended.
20. Gains/(Losses) on Financial Assets and Liabilities HFT/Trading Income (Loss) refer to the sum of
realized gains/(losses) from sale/derecognition of, and unrealized gains (losses) from marking-to-market
of financial assets and liabilities HFT, and realized gains/(losses) from foreign exchange transactions.
21. Gross Assets refer to total assets plus allowance for credit losses on loans; allowance for credit losses
ii Office of Supervisory Policy Development ii

on SCR; and allowance for losses on ROPA. For purposes of computing the NPA ratio where gross
assets serve as the denominator, allowance for equity investments is excluded. Said allowance refers to
the cumulative amount of impairment loss incurred on equity investments in subsidiaries, associates and
joint ventures which shall be accounted for in accordance with PAS 36 Impairment of Assets.
22. Gross Value Added defined by the Philippine Statistics Authority as the value of output less the value
of intermediate consumption.
23. High Quality Liquid Assets (HQLA) refer to an asset that can be converted easily and immediately
into cash at little or no loss of value in private markets to meet the banks’ liquidity needs during times of
stress. To qualify as HQLA, the liquid asset should possess the asset and market liquidity characteristics,
and should satisfy the operational requirements for monetization prescribed under the liquidity coverage
ratio (LCR) standard.
24. Income Tax Expense refers to the periodic provision for income tax.
25. Interest-bearing Liabilities refer to the sum of financial liabilities HFT, financial liabilities at DFVPL,
deposit liabilities, due to other banks, bills payable, unsecured subordinated debt, bonds payable, redeemable
preferred shares, derivatives with negative fair value held for hedging and finance lease payment payable.
26. Money Changer (MC)/Foreign Exchange Dealer (FXD) refers to any entity who engages in money
changing/foreign exchange dealing business. This includes authorized agent banks’ subsidiary/ affiliate
forex corporations (AAB-forex corps), among others.
27. Money Laundering Offense is a crime whereby the proceeds of an unlawful activity are transacted,
thereby making them appear to have originated from legitimate sources.
28. National Retail Payment System (NRPS) is a policy and regulatory framework that aims to establish
a safe, reliable and affordable retail payments system in the country. The NRPS, and the payment ecosystem
that is envisioned to arise from it, is positioned to be a platform for fintech innovations.
Industry players can utilize fintech solutions and provide services within an organized, commercially-
viable and efficient retail payment system.
29. Net Cash Outflows pertains to the sum of the total expected outflow amounts less the sum of the total
expected inflow amounts, with the inflow amounts limited to 75 percent of outflow amounts. The
calculated amount makes up the denominator of the liquidity coverage ratio (LCR), thereby establishing
the amount of HQLA that a bank would be required to hold.
30. Net Interest Income refers to the difference between interest income, and the sum of provision for
losses on accrued interest income from financial assets and interest expense.
31. Net Profit or Loss refers to the difference of total operating income and non-interest expenses, plus
(less) the recoveries/(losses) on financial assets, share in the profit/(loss) of unconsolidated subsidiaries,
associates, joint ventures and minority interest in profit/(loss) of subsidiaries, less provision for income
taxes.
32. Net Stable Funding Ratio (NSFR) promotes long-term resilience of a bank/quasi-bank (QB) against
liquidity risk by maintaining a stable funding profile in relation to the composition of its assets and off-
balance sheet activities.
33. Non-Current Assets Held for Sale (NCAHS) refer to ROPAs that are available for immediate sale in
their present condition subject only to terms that are usual and customary for sales of such assets and
the sale must be highly probable.
34. Non-Interest Expenses refer to the sum of compensation and fringe benefits, taxes and licenses, fees
and commissions, other administrative expenses, depreciation and amortization, impairment losses and
provisions.
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First Semester 2018
35. Non-Interest Income refers to the sum of dividend income, fee-based income (including income
from fiduciary activities), gains on financial assets and liabilities HFT, foreign exchange profits,
profits from sale/de-recognition of non‑trading financial assets and liabilities, profits from sale/de-
recognition of non-financial assets, profits on financial assets and liabilities DFVPL, profits on fair
value adjustment in hedge accounting and other non-interest income.
36. Non-Performing Assets (NPA) refer to the sum of non-performing loans (NPL) and ROPA, gross,
excluding performing SCR (as provided under Circular No. 380 dated 28 March 2003) and including
NCAHS (as provided under Circular No. 512 dated 3 February 2006).
37. Non-Performing Loans (NPL) generally refers to loans, investments, receivables or any financial
asset that is considered impaired under existing accounting standards, classified as doubtful
or loss, in litigation, and/or there is evidence that full repayment of principal and interest is unlikely
without foreclosure of collateral, if any. Net NPL refers to gross NPLs less specific allowance for
credit losses on NPLs.
38. Pawnshop Business refers to the business of lending money on personal property that is physically
delivered to the control and possession of the pawnshop operator as loan collateral. The term shall
be synonymous, and may be used interchangeably, with pawnbroker or pawnbrokerage.
39. Project Finance is a method of funding in which the lender looks primarily to the revenues
generated by a single project, both as a source of repayment and as security for the exposure. It
possesses all the following characteristics either in legal form or economic substance:
a. The exposure is typically to an entity (often a special purpose entity or SPE) which was
created specifically to finance and/or operate physical assets;
b. The borrowing entity has little or no other material assets or activities, and therefore little
or no independent capacity to repay the obligation, apart from the income that it receives
from the asset(s) being financed;
c. The terms of the obligation give the lender a substantial degree of control over the asset(s)
and the income that it generates; and
d. As a result of the preceding factors, the primary source of repayment of the obligation is the
income generated by the asset(s) being financed, rather than the independent capacity of a
broader commercial enterprise.
40. Provision for Losses on Accrued Interest Income from Financial Assets refers to the impairment
loss on accrued interest income from loans and other financial assets, net of equity securities,
charged against current operations.
41. Real and Other Properties Acquired (ROPA) refer to real and other properties, other than those
used for banking purposes or held for investment, acquired by the bank in settlement of loans
through foreclosure or dacion in payment and/or for other reasons, whose carrying amount will
be recovered principally through a sale transaction.
42. Recoveries on Charged-off Financial Assets refer to the collection of accounts or recovery from
impairment of charged-off financial assets/financial assets provided with allowance for credit
losses.
43. Redeemable Preferred Shares refer to preferred shares issued which provides for redemption on
a specific date.
44. Regulatory Technology (Regtech) refers to any range of applications of FinTech for regulatory
and compliance requirements and reporting by regulated financial institutions. This can also refer
to firms that offer such applications. (see FSB 2017b)
45. Remittance and Transfer Company (RTC) refers to any entity that provides Money or Value
Transfer Service (MVTS). The MVTS refers to financial services that involve the acceptance of cash,
iv Office of Supervisory Policy Development iv

cheques, other monetary instruments or other stores of value and the payment of a corresponding
sum in cash or other form to a beneficiary by means of a communication, message, transfer, or through
a clearing network. This includes remittance agents, remittance platform provider and e-money issuer
(EMI).
46. Remittance Service Agent (RSA) refers to any person authorized by the RTC to perform certain
relevant undertakings in the remittance business. This includes any person that is allowed by a
remittance direct agent, remittance agent network provider and/or EMI to do any part of the
remittance business in their behalf.
47. Sales Contract Receivable (SCR) refers to the amortized cost of assets acquired in settlement of loans
through foreclosure or dacion in payment and subsequently sold on installment basis whereby the
title to the said property is transferred to the buyers only upon full payment of the agreed selling price.
48. Supervisory Technology (Suptech) is defined by the Basel Committee on Banking Supervision (BCBS)
as the use of technologically enabled innovation by supervisory authorities.
49. Tier 1 Capital refers to going concern capital and is composed of CET1 and Additional Tier 1 Capital.
50. Total Assets refer to the sum of all net assets less “Due from Head Office/Branches/Agencies Abroad
(Philippine branch of a foreign bank)
51. Total Capital refers to the sum of paid-in capital of locally incorporated banks, assigned capital and
the allowable qualified capital component of the net “Due To/Due From Head Office/ Branches/
Agencies” accounts of branches of foreign banks, other equity instruments, deposit for stock
subscription, retained earnings and undivided profits, stock dividends distributable, other
comprehensive income, and appraisal increment reserves, less treasury stock and minority interest in
subsidiaries.
52. Total Operating Income refers to the sum of net interest income and non-interest income.
53. Unsecured Subordinated Debt (UnSD) refers to the amortized cost of obligations arising from the
issuance of unsecured subordinated debt which may be eligible as Tier 2 (supplementary) capital of
the bank, subject to certain terms and conditions.
54. Virtual Currency (VC) refers to any type of digital unit that is used as a medium of exchange or a
form of digitally stored value created by agreement within the community of VC users. VCs are not
issued nor guaranteed by any jurisdiction and do not have legal tender status.
Financial Supervision Sector v

First Semester 2018
B. FINANCIAL AND OTHER RATIOS

1. Capital Adequacy Ratio (CAR) refers to the ratio of total qualifying capital to risk weighted assets
computed in accordance with the risk-based capital adequacy framework effective 01 July 2001
under BSP Circular No. 280 dated 29 March 2001. The current capital framework incorporates credit
risk (Circular No. 280), market risk (Circular No. 360 dated 3 December 2002), operational risk (Circular
No. 538 dated 4 August 2006) and capital conservation buffer (Circular No. 781 dated 15 January
2013).
2. Cost-to-Income Ratio refers to the ratio of non-interest expenses, net of impairment losses, to total
operating income.
3. Density Ratio refers to the ratio of the total number of domestic banking offices to the total number
of cities/municipalities in the Philippines.
4. Distressed Assets Ratio refers to the ratio of distressed assets to total loans (gross of allowance for
probable losses), inclusive of interbank loans, plus ROPA (gross of allowance for losses).
5. Earning Asset Yield refers to the ratio of interest income to average earning assets.
6. Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities.
7. Interest Spread refers to the difference between earning asset yield and funding cost.
8. Leverage Ratio defined as the capital measure (the numerator) divided by the exposure measure (the
denominator), with this ratio expressed as percentage. It is designed to act as a supplementary
measure to the risk-based capital requirements and intends to restrict the build-up of leverage in the
banking sector to avoid the destabilizing deleveraging processes which can damage the broader
financial system and the economy. Capital Measure is the Tier 1 capital while the Exposure Measure
refers to the sum of on-balance sheet exposures, derivative exposures, securities financing transaction
exposures and off-balance sheet items.
9. Liquidity Coverage Ratio (LCR) refers to the ratio of high quality liquid assets (HQLAs) to total net
cash outflows.
10. Net Interest Margin refers to the ratio of net interest income to average earning assets.
11. Non-Performing Asset (NPA) Coverage Ratio refers to the ratio of allowance on NPAs to total
NPAs.
12. NPA Ratio refers to the ratio of NPAs to total assets, gross of allowance for credit losses.
13. Non-Performing Loan (NPL) Coverage Ratio refers to the ratio of allowance for credit losses on
loans to total NPLs.
14. NPL Ratio refers to the ratio of NPLs to total loans (gross of allowance for credit losses), inclusive
of interbank loans.
15. Population-to-Banking Offices Ratio (Customer Ratio) refers to the ratio of the total population
to the total number of domestic banking offices.
16. Return on Assets (ROA) refers to the ratio of net profit or loss to average assets.
17. Return on Equity (ROE) refers to the ratio of net profit or loss to average capital.
vi Office of Supervisory Policy Development vi

Prologue
A Report on the Philippine Financial System is a semestral report prepared by the Office of
Supervisory Policy Development (OSPD), Financial Supervision Sector (FSS), Bangko Sentral
ng Pilipinas (BSP), to be submitted by the Governor to the President and the Congress,
pursuant to Section 39 (c), Article V of Republic Act No. 7653 or The New Central Bank Act
and other pertinent banking laws.
This report basically analyses the insights from various periodic reports submitted by the
BSP supervised/regulated institutions to the Supervisory Data Center, FSS. As of end-June
2018, the BSP supervised/regulated financial institutions consisted of 581 banks with 11,485
branches and other offices, 775 non-bank financial institutions (NBFIs) with 7,988 branches
and two offshore banking units (OBUs).
Effective 3 July 1998, the supervision and regulation of the BSP over non-banking entities
were turned over to the Securities and Exchange Commission (SEC) for corporations and
partnerships, and to the Department of Trade and Industry (DTI) for single proprietorships,
in accordance with Section 130 of Republic Act No. 7653, except the following: non-banks
with quasi-banking functions and/or with trust licenses, non-banks which are subsidiaries/
affiliates of banks and quasi-banks, non-stock savings and loan associations and pawnshops.
Likewise, the supervision and regulation over building and loan associations were transferred
to the Home Guarantee Corporation (HGC) effective 7 February 2002, in accordance with
Section 94 of Republic Act No. 8791 (The General Banking Law of 2000).
Financial Supervision Sector vii

Philippine Banking Sector
2
Broad Financial Landscape
Overview
Growth of Philippine banking system’s assets followed by financial assets other than loans3 and
lifts financial intermediation cash and due from banks with 22.2 percent
share (P3,478.9 billion) and 15.3 percent share
The Philippine banking system’s sustained (P2,407.9 billion), respectively (Figure 1). Gross
growth in the first semester of 2018 supported loans grew by 16.6 percent YoY primarily on
the relatively strong economic growth. While account of the 17.5 percent increase in gross total
real gross domestic product (GDP) expanded loan portfolio (TLP) of U/KBs. Net financial assets
year-on-year (YoY) by 6.3 percent, the banking rose by 14.6 percent YoY due to the substantial
system’s total assets expanded at a double-digit increase in held-to-maturity (HTM) financial
rate, driven by upbeat bank lending funded by assets by 37.0 percent to P2,078.4 billion as banks
stable peso deposits from residents. In turn, gross continued to shift their investment portfolio from
value added (GVA) of financial intermediation1 trading to non-trading securities to avoid potential
in the National Income Accounts rose by 8.7 mark-to-market losses on higher interest rates.
percent mostly on account of the growth in
Banking Institutions and Non-Bank Financial Figure 1
Philippine Banking System
Intermediation at 9.8 percent and 9.7 percent, Components of Total Assets
(As of End-Period Indicated)
respectively. (In Billion Pesos, LHS) (In Percent, RHS)
16,000 15,704.4 16.0
The banking system’s total assets expanded

to P15,704.4 billion as of end-June 2018, 12,000
10.3
12.0
10.3 percent higher than the level recorded as

8,000 8.0
of end-June 2017. Banks’ total assets accounted
for 95.0 percent of the annualized nominal GDP2 4,000 4.0
at end-June 2018. By industry, universal and
commercial banks (U/KB) held the bulk of the 0 -
banking system’s total assets at P14,280.6 billion Dec-15 Dec-16 Dec-17 Jun-17 Jun-18
Loans, gross (LHS) Financial Assets, net (LHS)
(90.9 percent) while the total assets of thrift Cash and Due from Banks (LHS) Others * (RHS)
banks (TBs) and rural and cooperative banks Source of data: Supervisory Data Center
Total Assets YoY Growth Rate (RHS) * includes Allowance for Credit Losses - TLP
(RCBs) stood at P1,187.8 billion (7.6 percent)

and P236.0 billion (1.5 percent), respectively.
Meanwhile, total industry assets of U/KBs, Cash and due from banks declined by 12.6
TBs and RCBs posted YoY growth rates of 10.9 percent. Due from BSP dropped by P269.8
percent, 4.5 percent and 8.3 percent, respectively. billion to P1,890.2 billion which may have
been brought about by the reduction in the
Loan growth drives asset expansion required reserves against deposit and deposit
substitute liabilities in May 2018. Meanwhile,
Asset expansion was supported by loan growth, most of the banking system’s total assets were
with gross loans comprising the largest share of peso-denominated (80.6 percent or P12,657.9
the banking system’s resources at 59.6 percent, billion). Foreign-currency denominated assets
made up only 19.4 percent (USD 57.1 billion
equivalent to P3,046.5 billion) of total assets.
1 Composed of Banking Institutions, Non-bank Financial 3 Composed of investment portfolio booked under held-to-maturity
Intermediation, Insurance, and Activities Auxilliary to Financial (HTM), available-for-sale (AFS), held for trading (HFT), unquoted
Intermediation. debt securities classified as loans (UDSCL), securities designated
2 At end-June 2018, annualized GDP at current prices stood at at fair value through profit or loss (DFVPL), investments in non-
P16,527.6 billion. marketable equity securities (INMES), and equity investments.
Financial Supervision Sector 3

First Semester 2018
Loan growth remains broad-based Growth of real estate exposures and consumer
Figure 2
loans both decelerate
Bank Lending Trends Figure 4
Universal, Commercial and Thrift Banks
(In Billion Pesos, LHS) (In Percent, RHS) Real Estate Exposures (Consolidated Basis)
10,000 20.0 (As of End-Period Indicated)
9,000 18.0 (In Billion Pesos, LHS) (In Percent, RHS)
16.6 2,500 30.0
8,000 16.0 2,139.4
7,000 14.0 2,000 25.0
6,000 9,352.0 12.0
20.0
5,000 10.0 1,500
4,000 8.0 11.2 15.0
3,000 6.0 1,000
10.0
2,000 4.0
1,000 2.0 500 5.0
- 0.0
Dec-15 Dec-16 Dec-17 Jun-17 Jun-18 0 -
Total Loan Portfolio (TLP, LHS) TLP YoY Growth Rate (RHS)
Source of data: Supervisory Data Center Commercial RELs (LHS) Residential RELs (LHS)
Investments in Securities (LHS) Total REEs YoY Growth (RHS)
Source of data: Supervisory Data Center
The TLP of the banking system grew by

16.6 percent YoY to P9,352.0 billion, albeit slightly Both real estate exposures (REEs) and consumer
slower than the 18.0 percent growth rate in June loans (CLs) continued to expand but at a slower
2017 (Figure 2). By economic activity, real estate pace. The REEs 4 of U/KBs and TBs on a consolidated
activities still had the largest share of TLP at 17.4 basis increased by 11.2 percent YoY to P2,139.4
percent (Figure 3). This was followed by wholesale billion but notably slower than the 18.6 growth
and retail trade, manufacturing, and loans for rate in June 2017 (Figure 4).
household consumption which had TLP shares
of 12.4 percent, 11.1 percent and 10.4 percent, These REEs are composed mainly of real estate
respectively. Loans to these major economic loans (RELs) with 85.9 percent share while the
sectors likewise posted double-digit YoY growth rest are real estate investments. Commercial
rates. RELs, which accounted for about two-thirds
Figure 3
of total RELs, mainly drive the growth in REEs.
Gross TLP by Economic Activity Total RELs went up by only 11.7 percent to
(As of End-Period Indicated, In Billion Pesos)
10,000 9,352.0 P1,836.9 billion, with a deceleration in the
8,000 YoY growth rates of both commercial RELs
6,000
(Figure 5) and residential RELs (Figure 6).
4,000
2,000
0 Meanwhile, Residential Real Estate Price Index
(RREPI) in the second quarter of 2018 increased
Others (18 remaining sectors*) Manufacturing Wholesale and Retail Trade by 4.8 percent YoY to 117.2 from 111.8 in the same
quarter a year ago. The YoY prices of townhouses,
Real Estate Activities For Household Consumption
Source of data: Supervisory Data Center * These refer to economic sectors under the 2009 PSIC.
Figure 5 Figure 6
Universal, Commercial and Thrift Banks Universal, Commercial and Thrift Banks
Commercial Real Estate Loans (Consolidated Basis) Residential Real Estate Loans (Consolidated Basis)
(As of End-Period Indicated) (As of End-Period Indicated)
(In Percent, RHS)
(In Billion Pesos, LHS) (In Billion Pesos, LHS) (In Percent, RHS)
1,191.7
1,200 40.0 1,200 40.0
35.0 35.0
1,000 1,000
30.0 30.0
800 800
25.0 25.0
645.2
600 20.0 600 20.0
15.0
15.0 15.0
400 10.0 400
10.0 10.0
200 200
5.0 5.0
0 - 0 -
Commercial RELs (LHS) Commercial RELs YoY Growth (RHS) Residential RELs (LHS) Residential RELs YoY Growth (RHS)
Source of data: Supervisory Data Center Source of data: Supervisory Data Center
4 Under the Expanded Report on Real Estate Exposures, REEs are

composed of loans, as well as investments in debt and equity
securities where the proceeds of the latter shall be used to finance
real estate activities.
4 Office of Supervisory Policy Development 4

condominium units and single detached housing reflecting respondent banks’ reduced tolerance
units grew by 13.3 percent, 9.1 percent and for risk. Meanwhile, credit standards for housing
0.8 percent, respectively. loans extended to households were unchanged,
based on both modal and DI approaches, reflecting
Figure 7
Universal, Commercial and Thrift Banks respondent banks’ unchanged tolerance for risk
Consumer Loans (Solo Basis)
(As of End-Period Indicated) and steady profile of borrowers.
(In Billion Pesos, LHS) (In Percent, RHS)
1,600 30.0
1,400 It should be noted that macroprudential measures
1,200
1,000
20.0 for REEs have been adopted. These measures are
800 in the form of (1) the REL limit (with exclusions)
600
400
10.0 of 20 percent of TLP, net of interbank loans,
200 for U/KBs8, and (2) the real estate stress test
0 -
(REST) thresholds for U/KBs and TBs9. The U/KB
Other Consumer Loans (LHS) Salary-Based General-Purpose Consumption Loans (LHS)
industry has been compliant with the REL limit
Credit Card Receivables (LHS)
Residential RELs (LHS)
Motor Vehicle Loans (LHS)
Total Consumer Loans YoY Growth (RHS)
since 2008, registering a 13.0 percent ratio as of
Source of data: Supervisory Data Center end-June 2018. Meanwhile, the REST results as of
end-June 2018 indicated that the stressed capital
The level of CLs of U/KBs and TBs, on a solo adequacy ratio (CAR) and common equity tier 1
basis, expanded by 15.1 percent to P1,566.6 (CET1) ratio of the U/KB industry registered above the
billion as of end-June 2018, lower than year minimum requirements on solo and consolidated
ago’s 18.5 percent (Figure 7). Residential bases.
RELs made up the largest share of CLs at
40.6 percent, followed by motor vehicle Moving forward, the BSP intends to craft a policy
loans (MVLs)5 at 32.1 percent, credit card on risk-based pricing framework for consumer
receivables (CCRs) at 16.3 percent, salary-based loans under which loan rates to be offered shall be
general-purpose consumption loans (SBGPCLs) based on the borrowers’ risk profile or credit score,
at 9.4 percent and other consumer loans at thus allowing those with good credit standing to
1.6 percent. The growth rates of MVLs and SBGPCLs enjoy lower interest rates.
have declined from year ago’s rates. Meanwhile,
that of residential REEs was almost unchanged at Banks continue to set aside funds for MSMEs
15.8 percent. However, the growth rate of CCRs and agri-agra borrowers
has accelerated to 21.5 percent YoY6 but CCR
levels remain manageable as these represent only The banking system provided a total of
2.8 percent of TLP. P538.9 billion credit to micro, small and medium
enterprises (MSMEs) in compliance with Republic
To curb inflationary pressures, the BSP raised the Act (R.A.) No. 6977, as amended by R.A. Nos. 8289
interest rate on its overnight reverse repurchase and 9501. This was higher than the previous year’s
(RRP) facility by a total of 150 basis points beginning P497.8 billion. This resulted in the system’s overall
this year. Such tightening of monetary policy and compliance ratio of 7.8 percent, albeit, slightly
consequent increase in bank lending rates7 may lower than the required 10 percent (i.e., 8.0 percent
have contributed to slowdown in growth of real for MSEs and 2.0 percent for MEs) under the law.
estate and consumer loans. (Table 1)
The results of the Senior Bank Loan Officers’ Survey 8 For purposes of computing the 20 percent limit as detailed in Circular
(SLOS) for the second quarter of 2018, based on No. 600 dated 4 February 2008, RELs of U/KBs exclude the following:
(1) loans to individual households for housing units and acquisition
the diffusion index (DI) approach, reflected a net of land to be occupied by the borrower; (2) loans to developers/
tightening of credit standards for household loans, construction companies for socialized and low-cost residential
properties for government housing programs; (3) loans guaranteed
5 MVLs are mainly auto loans which stood at P484.9 billion (96.4 by the Home Guaranty Corporation; and (4) loans collateralized by
percent share) while the rest are motorcycle loans at P17.9 billion. non-risk assets.
6 CCRs grew by 21.5 percent YoY to P255.1 billion, i.e., at a faster pace 9 Under Circular No. 839 dated 27 June 2014, the REST limit combines
than the 17.0 percent growth rate a year ago. a macroprudential overlay of a severe stress test scenario, the
7 As of end-June 2018, bank average lending rates stood at 5.901 principle of loss absorbency through minimum capital ratio
percent, higher than year ago’s 5.609 percent. thresholds, and heightened supervisory response.

First Semester 2018
Table 1 the banking system’s 12.8 percent compliance

Philippine Banking System ratio for other agricultural credit was below the
Compliance with the Mandatory Credit Allocation to MSMEs 1/
As of End-June 2018
p/ required 15.0 percent under the law. Moreover, its
(Levels in Billion Pesos, Ratios in Percent) compliance ratio for agrarian reform credit was
All Banks U/KBs TBs RCBs only 1.1 percent which was below the required
Total Loan Portfolio Net of Exclusions 6,875.8 5,969.7 795.1 111.0 10.0 percent. (Table 2)
Minimum Amount Required to be Allocated for:
Micro and Small Enterprises (MSEs) Credit (8%) 550.1 477.6 63.6 8.9
Medium Enterprises (MEs) Credit (2%) 137.5 Importantly, the RCB industry’s agrarian reform
119.4 15.9 2.2
Total 687.6 and other agricultural credit compliance ratios of
597.0 79.5 11.1
Compliance with Prescribed Allocation of Loan Portfolio to:
MSEs
11.6 percent and 26.1 percent, respectively, far
Total compliance for MSEs 215.5 151.0 41.3 23.2 exceeded the required ratios of 10.0 percent and
Percentage of Compliance for MSEs 3.1% 2.5% 5.2% 20.9%
MEs 15.0 percent, respectively. In the same manner,
Total compliance for MEs 323.4 270.3 42.1 11.0 said industry’s MSE and ME compliance ratios
Percentage of Compliance for MEs 4.7% 4.5% 5.3% 9.9%
Total of 20.9 percent and 9.9 percent, respectively,
Total compliance for MSMEs 538.9 421.3 83.4 34.3 were significantly above the 8.0 percent and
Percentage of Compliance for MSMEs 7.8% 7.1% 10.5% 30.9%
1/ Required under R.A. No. 6977, as amended by R.A. Nos. 8289 and 9501
2.0 percent statutory floor, respectively. As such,
p/ Preliminary; Substituted data as of end-March 2018 in spite of their minimal share in the banking
Source of data: Supervisory Data Center system’s TLP, RCBs were able to cater to the needs
of agri-agra and MSME borrowers who may be
The banking system’s total credit allocation to underserved by larger banks with more complex
MEs of P323.4 billion led to a compliance ratio business models.
of 4.7 percent which was above the required
2.0 percent. On the other hand, the banking Penalties have been collected from banks which
system’s funds allocated to MSEs totaling have failed to fully comply with the mandatory
P215.5 billion resulted in a compliance ratio of only agri-agra and MSME credit allocation. Under
3.1 percent which was below the 8.0 percent the law, penalties imposed on banks for
statutory floor. non-compliance/under-compliance with the
mandated credit allocations to the agri-agra and
MSME sectors are remitted to the Agricultural
Table 2 Guarantee Fund Pool (AGFP) and Philippine Crop
Philippine Banking System Insurance Corporation (PCIC), and the MSME
Compliance with the Mandatory Allocation for Agrarian Reform/Other Agricultural Credit 1/
As of End-June 2018 p/ Development Council Fund, respectively.
(Levels in Billion Pesos, Ratios in Percent)
All Banks U/KBs TBs RCBs Results of the initial report on the Banking Sector
Total Loanable Funds Generated 4,303.6 4,026.1 208.5 69.0 Outlook Survey (BSOS) for the first semester of
Minimum Amount Required to be Allocated for: 2018 indicated that, except for RCBs, compliance
Agrarian Reform Credit (AGRA, 10% ) 430.4 402.6 20.8 6.9
Other Agricultural Credit (AGRI, 15%) 645.5 603.9 31.3 10.4 with mandatory credit allocation for MSMEs
Total 1,075.9 1,006.5 52.1 17.3
and agri-agra is the most challenging area
Compliance with AGRA
Total compliance with AGRA 45.6 34.3 3.3 8.0 for respondent banks in terms of compliance.
Percentage of Compliance with AGRA 1.1% 0.9% 1.6% 11.6% Moreover, complex banks’ business models may
Compliance with AGRI
Total compliance with AGRI 552.3 518.5 15.9 18.0 not be geared toward lending to the agri-agra
Percentage of Compliance with AGRI
Total
12.8% 12.9% 7.6% 26.1%
and MSME sectors.
Total compliance for AGRI-AGRA 597.9 552.7 19.2 26.0
Percentage of Compliance for AGRI-AGRA
The mandatory credit allocation for MSMEs as set
13.9% 13.7% 9.2% 37.7%
1/ Required under R.A. No. 10000 (the Agri-Agra Reform Credit Act of 2009)
forth in R.A. No. 6977, as amended by R.A. Nos.
p/ Preliminary; Substituted data as of end-March 2018
Source of data: Supervisory Data Center 8289 and 9501, ended last 16 June 2018. However,
the BSP continues to monitor the exposures of the
Banks also allocated a total of P597.9 banking system to MSMEs. Furthermore, the BSP
billion of loanable funds for agriculture and supports the current review of the existing MSME
agrarian reform credit under R.A. No. 10000 and agri-agra laws (R.A. Nos. 9501 and 10000)
(the Agri-Agra Reform Credit Act of 2009), higher aimed at contributing to a more broad-based,
than year ago’s level of P544.0 billion. However, inclusive growth of the financial system.

Banks sustain the quality of loans asset10 (NPA) ratio was likewise unchanged at 1.8
percent from year ago’s ratio. While there were
Amid the growth in loan portfolio, the loan increases in both NPL and ROPA levels, the NPA
quality of the banking system remained growth rate was outpaced by that of gross assets.
satisfactory. The non-performing loan (NPL) Meanwhile, the NPA coverage ratio was also
ratio was recorded at 1.9 percent as of strong at 80.9 percent (higher than year ago’s 79.6
end-June 2018, unchanged from year ago’s ratio. percent). Comparative asset quality indicators by
industry are summarized in Table 3.
Figure 8
NPL Ratio and NPL Coverage Ratio Banks rebalance their investment portfolio
(In Percent, LHS) (In Percent, RHS) from trading to non-trading securities
130.0
6.0
120.0 Figure 9
5.0 Financial Assets*
110.0 114.4
(As of End-Period Indicated, In Billion Pesos)
4.0 2,200
100.0 2,000
3.0 1,800
90.0
1,600
1.9 1,400
80.0 2.0
1,200
1,000
70.0 1.0
800
600
400
NPL Coverage Ratio (LHS) NPL Ratio (RHS)
200
0
The NPLs went up to P174.1 billion from

Held-For-Trading Available-For-Sale Held-To-Maturity
P155.6 billion a year ago but the NPL growth * excludes Unquoted Debt Securities Classified as Loans (UDSCL), Investments in Non-Marketable Equity Securities (INMES) and
Financial Assets Designated at Fair Value through Profit or Loss (DFVPL)
rate of 11.9 percent was outpaced by the Source of data: Supervisory Data Center
16.6 percent TLP expansion. Moreover, the NPL

ratio declined for the past five years (Figure
8). On specific consumer financial portfolio,
the non-performing REL ratio was recorded The banking system continued to rebalance its
at 1.8 percent. The quality of total CLs slightly investment portfolio from trading to non-trading
improved to 4.0 percent during the same period. securities due to interest rate11 volatilities. In
particular, gross financial assets rose by 15.1
percent YoY to P3,237.1 billion. Almost two-thirds
Table 3
of these were held-to-maturity (HTM) financial
Philippine Banking System assets at P2,078.4 billion (64.2 percent share) while
Comparative NPL, NPA & Coverage Ratios available-for-sale (AFS) securities (P876.9 billion)
As of End-June 2018 p/ also had a sizeable share (27.1 percent). Meanwhile,
(In Percent)
minimal shares were those of financial assets held-
Coverage Ratios for-trading (HFT) and unquoted debt securities
Gross NPL Ratio NPA Ratio
NPL NPA classified as loans (UDSCL) which were posted at
All Banks 1.9% 1.8% 114.4% 80.9%
P202.4 billion (6.3 percent) and P61.0 billion (1.9
Universal and Commercial Banks 1.3% 1.3% 143.6% 97.7%
percent), respectively.
Thrift Banks 5.3% 5.7% 60.0% 47.4%
Rural and Cooperative Banks 12.4% 10.6% 72.8% 50.5% Securities booked under HTM, which are on an
p/ Preliminary; Data for rural and cooperative banks as of end-March 2018 uptrend since 2013, have exceeded AFS securities
starting June 2015 (Figure 9). Such a shift in
investment portfolio may be seen as banks shielding
their balance sheets from mark-to-market (MTM)
The banking system continued to set aside
10 Non-performing assets are composed of NPLs and real and other
adequate provisioning for credit losses, with
properties acquired (ROPA), gross.
the NPL coverage ratio at 114.4 percent as of 11 Other than loans and equity investment in subsidiaries, associates
end-June 2018. Meanwhile, the non-performing and joint ventures

First Semester 2018
losses resulting from rising interest rates, as well By type of deposits, savings deposits grew by 8.1
as tightening of the BSP’s monetary policy stance. percent and was still the biggest source of banks’
Portfolio investments of U/KBs and TBs were total deposits with a share of 47.2 percent as of
largely peso-denominated totaling P1,792.0 end-June 2018 (Figure 11). This type of deposits is
billion (55.9 percent share) while the foreign considered inherently stable as it is not particularly
currency-denominated investments12 aggregated sensitive to adverse changes in the bank’s profile.
to an equivalent of P1,415.8 billion (44.1 percent Moreover, time certificate of deposits, demand
share). In terms of counterparty, banks invested deposit and LTNCDs registered double-digit YoY
mostly in securities issued by the Philippine growth at 10.2 percent, 13.2 percent and 40.9
National Government which represented a percent, respectively. The double-digit growth in
substantial share of 67.3 percent (P2,158.1 billion). demand and time deposits may be attributed to
Smaller shares were taken by non-resident the reduction in reserve requirement ratios by 200
central government/banks at 10.5 percent bps starting March 2018.
(P338.3 billion) and resident corporations at 8.7
percent (P278.6 billion).13 Figure 11
Philippine Banking System:
Deposit Liabilities Profile
Deposits are mainly from resident individuals By Type of Deposits
and private corporations As of End-Period Indicated, In Billion Pesos
14,000 Negotiable Orders of Withdrawal
12,149.4
12,000 Demand Deposits
Figure 10
Savings Deposits
Philippine Banking System: Total Deposits 10,000
Time Certificate of Deposits
As of End-Periods Indicated
8,000 LTNCDs
16,000 16.0
6,000
14,000 14.0
12,149.4 4,000
12,000 12.0
2,000
in bIllion pesos (LHS)
in percent (RHS)
10,000 10.0
10.3
8,000 8.0 0
6,000 6.0
4,000 4.0
2,000 2.0
0 0.0
Dec-15 Dec-16 Dec-17 Jun-17 Jun-18
Individuals (LHS)
Government (LHS)
Resident Private Corporations (LHS)
Trust Department (LHS) Based
By on thesavings
type of deposits, BSOS for grew
deposits thebyfirst semester
8.1 percent and was of 2018,
still the biggest
Resident Banks (LHS)
Total Deposits (% YoY Growth, RHS)
Non-Residents (LHS)
majority
source of banks’oftotalthe respondents
deposits expect
with a share of 47.2 percent deposits
as of end-Juneto 2018
(Figure 11). This type of deposits is considered inherently stable as it is not
grow between 10 percent and 20 percent in the
particularly sensitive to adverse changes in the bank’s profile. Moreover, time
next two years.demand deposit and LTNCDs registered double-digit YoY
The expansion in the banking system’s assets was certificate of deposits,
growth at 10.2 percent, 13.2 percent and 40.9 percent, respectively. The double-
supported by the 10.3 percent growth in deposits
Looking
digit growth inin greater
demand and timedetail
deposits,at
maythe determinants
be attributed to the reductionof in
to P12,149.4 billion (Figure 10). These deposits reserve requirement ratios by 200 bps starting March 2018 while the growth in
the behavior of median deposit interest rates from
were mostly peso-denominated and sourced LNCDs was mainly because of the implementation of the net stable funding ratio
third quarter of capital
2014requirements.
to fourth quarter of 2017,
mainly from resident individuals and private and reduction in minimum
a technical study (Box Article 1) shows that the
corporations which have shares of 47.7 percent
regional GDP growth and the increasing size of
and 32.5 percent, respectively. This was followed
banks’ quarterly deposits aggregated per region
by the government with 13.1 percent share and
have contributed to lower median interest rate.
trust department with 4.5 percent share. This
Moreover, the absence of weather disturbance
broadly indicates a stable funding source for the
has a positive effect on median interest rate while
banking system.
higher inflation and lower overnight RRP rates are
12 Booked under foreign regular, FCDU/EFCDU and foreign offices seen to have a negative effect.
13 Other counterparties include non-resident banks at 5.4 percent
(P173.0 billion), non-resident corporations at 3.1 percent (P99.7
billion), Philippine government-owned and controlled corporations
at 2.4 percent (P78.3 billion) and resident banks at 1.2 percent
(P39.7 billion). Minimal shares were posted by non-resident public
sector entities, resident individuals, the BSP, multilateral agencies
and Philippine local government units totaling 1.3 percent (P41.6
billion).

Capital continues on an upward trend of risky assets compared to banks’ capital expansion
activities. Nonetheless, the U/KBs maintained a
Since December 2015, the banking system’s capital strong capital position with high-quality capital of
continued on an uptrend reaching P1,939.4 billion 13.5 percent common equity tier 1 (CET1).
level as of end-June 2018, a 14.6 percent increase
from P1,691.9 billion of the same period last year. The U/KBs’ credit risk-weighted assets (CRWA)
The growth in capital is historically attributed to continued to account for the largest share of the
increments in capital stock (consisting of paid in banks’ total risk-weighted assets (RWA) (Figure 14).
capital, stock dividend distributable and treasury Loans extended to corporations remained the main
stock) which usually comprised about half of the driver of the rising CRWA of banks. This warranted
total capital accounts of banks (Figure 12). the need for aggressive capital raising activities
of banks to support the system against potential
Figure 12
losses from the persistent expansion in the loan
Percent Share of Components of Banks' Capital portfolio.
and its Growth Rates (Y-O-Y)
% Share (LHS)
Figure 14
Growth Rates (RHS)
120 25 Universal and Commercial Banks
100
Components of Risk-Weighted Assets
21.4 20
18.8 As of End-Periods Indicated
80
In Billion Pesos
14.6 15
60 13.5 12,000
11.1
10 Credit Market Operational
10.3
40 8.0
6.4 10,000
5
20
2.7
0 0
8,000
Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18
Capital Stock (LHS) Ret. Earnings & Undiv. Profits (LHS)
6,000
Appraisal Increment Reserves (LHS) Other Capital Accounts (LHS)
Growth Rate (RHS)
Source of Data: Supervisory Data Center 4,000
2,000
By component, capital stock grew by 16.8 percent 0

which mainly came from new capital infusions. Source of Data: Supervisory
Data Center
The stronger capital position of banks was also
supported by simultaneous increases in retained
earnings (14.2 percent), assigned capital for foreign Strong core earnings drive bank profitability
banks (16.0 percent) and other comprehensive
income (30.1 percent). Figure 15
Figure 13 Components of Interest Income
Risk-Based Capital Adequacy Ratio (CAR) -Solo and For the Period January to June 2018
YOY Growth Rates of TQC and RWA of Banks
Available-For-Sale Others
As of End-Periods Indicated 3.2%
Securities
In Percent
20 4.3%
15.9 15.2
15.2 15.5 14.9 15.4
14.4
15.3 14.4 Held-To-Maturity
15 Financial Assets
11.9%
10
0
-5 Loans and Receivables
CAR TQC RWA 80.6%
Source of Data: Supervisory Data Center
Meanwhile, the U/KBs’ risk-based capital adequacy

ratio (CAR) under the Basel III framework improved Source of data: Supervisory Data Center
to 15.2 percent as of end-June 2018 from 14.4

percent as of end-December 2017. However, this
semester’s CAR slightly dropped from the 15.3 For the period January to June 2018, the Philippine
percent registered as of end-June 2017 (Figure 13). banking system recorded a positive bottom line
This was due to the faster rise in the accumulation as the net profit grew to P86.0 billion which was

First Semester 2018
5.8 percent higher than the level a year ago. players in the fintech landscape with 45 and 30
The overall profitability was buoyed by the 14.1 banks, respectively, offering these services. This
percent increase in net interest income to P238.5 was followed by mobileapps with 26 banks, and
billion. In particular, interest income amounting mobile banking services with 23 banks to facilitate
to P319.9 billion primarily came from loans and fast, efficient and real-time transfer of payment
receivables (P257.9 billion) followed by that from and settlement transactions (Figure 17).
HTM financial assets (Figure 15). On the other
Figure 17
hand, majority of the banking system’s interest Philippine Banking System:
expense of P80.3 billion was represented by Approved E-Banking and E-Money Applications
interest paid on deposits (81.0 percent share or As of End-June 2018
P65.1 billion). Internet Banking
Banking landscape caters to a wider network Electronic Money Issuers

and becomes technology-enabled
MobileApps
As of end-June 2018, banks recorded a network of Mobile Banking

581 head offices and 11,485 other offices (Figure
16). The streamlined number of operating banks Bancnet POS Cash-out Aggregator/ Acquirer
indicates continuous industry consolidation. In
ETFPS (BIR)
particular, there was a case of merger reported as
of end-June 2018 that involved two RBs. Likewise, Phone banking
there were seven cases of closures involving
four RBs and three non-banks. Mergers and Internet Banking thru BancNet Online
consolidations were encouraged among small
Lendr Program (of Voyager Innovations, Inc.)
banks to bring about a less fragmented banking
system. Remittance Card Only
Figure 16 0 10 20 30 40 50
Philippine Banking System: Number of Bank Offices
As of End-Period Indicated Source of Data: Supervisory Data Center
14,000 700
12,000 11,485
650 The industry also made progress in expanding
10,000
8,000
its geographic footprint not only with the 4.1
6,000
581 600 percent YoY growth in regular branches, but also
4,000 550
through establishment of microfinance-oriented
2,000 branch and branch-lite units (Figure 18).
- 500
Jun-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18
Head Office (Left Side) Other Office (Right Side)

Figure 18
Philippine Banking System: Number of Other Banking Offices
As of End-Period Indicated
14000
The financial technology (fintech) landscape of the 12000
Philippines is evolving and cuts across payments, 10000
insurance, deposit-taking, lending, capital raising, 8000
investment management and financial market

9,558
6000
infrastructure. With technology increasingly 4000
being portable, scalable and cost-attractive, it is 2000
being extensively used across different facets of 0
1,753
operations, from front office operations to risk Jun-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18
management in the middle office, up to back Branch-lite Extension Office Microbanking Office
office activities. Microfinance-Oriented Branch Regular Branch Regular Other Banking Office (OBO)
Note: Other Offices such as Representative Office, Remittance Desk Office, Marketing Office, Limited Purpose are not part of the list
As of end-June 2018, Internet Banking and

Electronic Money Issuers continue to be big

The concept of branch-lite was introduced in Figure 19
December 2017 and was implemented early this Composition of Contingent Accounts
(As of End-Periods Indicated)
year to serve the unbanked population nationwide. In Billion Pesos
This aims to facilitate greater access to efficient

8,000
7,000
and competitive financial products and services. 6,000
As of end-June 2018, there were 1,753 branch-lite 5,000
units stationed all over the country. The concept 4,000
also rationalized the various classifications of 3,000
banking offices such as extension offices, other 2,000
banking offices and microbanking offices under 1,000
the branch-lite network. 0

Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18
Derivatives Instruments Trust Department Accounts Commitments Bank Guarantees Trade-Related Accounts
Growth in derivative portfolio drives Source of data: Supervisory Data Center
contingent accounts expansion

The off-balance sheet accounts of banks are
The banking system’s contingent accounts which composed of bank guarantees, commitments,
accounted for 60.3 percent of on-balance sheet derivative instruments and trust department
assets, rose by 13.2 percent to P9,466.9 billion accounts.
as of end-June 2018 (Table 4). The increase in
the banking system’s off-balance sheet activities
was driven by the simultaneous increase in
all components of the contingent accounts,
particularly in derivative contracts, which held the
largest share of 44.2 percent (Figure 19).
Table 4
Philippine Banking System: Comparative Assets
(In Billion Pesos)
June 2018 June 2017 YOY Change (%)
On-Balance Sheet 15,704.4 14,236.4 10.3

Off-Balance Sheet* 9,466.9 8,364.6 13.2
*Includes trust assets of banks (P2,397.6 billion) but discussed separately in a stand-alone section.
The continued expansion in the derivative

portfolio of banks was mainly attibuted to the 23.4
percent rise in foreign exchange transactions. The
growth in foreign exchange related derivatives
of banks were used mostly in the hedging of
foreign exchange related risks. The trade-related
exposures of banks also notably escalated as
particularly shown in the 58.5 percent rise in the
issued letters of credit (LCs) to non-residents.

First Semester 2018
Box Article 1
What is Driving the Behavior of

Deposit Interest Rates in the Philippines?1
1. The Context
Banks play a critical role as the main credit growth and the level of bank concentration are
provider of the domestic economy. Bank deposits shown to be negatively associated with interest
or the money placed by bank customers in rate behavior. Moreover, both De Graeve et al.
banking institutions for safekeeping, provide the (2007) and Kok Sorensen and Werner (2006)
funding base and serve as major determinant made a distinction between short-term and
of domestic credit extended to the rest of the long-term deposit products.
economy. These deposits are at the core of
banks’ financial intermediation functions. By Meanwhile, studies on the impact of bank-
accepting deposits, banks match the depositors’ specific variables on the price of deposits are
need to place their excess funds in a low-risk, mostly subsumed under the market discipline
interest-earning facility with the borrowers’ literature. Bikker et al. (2008) defined market
requirement for credit (Bikker et al. 2008). Bank discipline as the process in which debt holders,
deposits receive/accrue some amount of interest such as depositors, require higher returns when
based on the prevailing market rate for deposit the probability increases that they incur losses
liabilities. in case of a bank default. Meanwhile, bank
risk and deposit rate are generally found to be
In view of this, banks must set interest rates positively correlated (e.g., Park and Peristiani
that support profitable growth and at the same 1998; Mondschean and Opiela 1999; Martinez
time, attract new depositors and retain existing Peria and Schmukler 2001; Demirgüç-Kunt and
clients. Interest rate is an effective tool to attract Huizinga 2004; Imai 2006; Murata and Hori
depositors. When the interest rate is high, a 2006; Hori et al. 2009; Beyhaghi et al. 2014),
bank’s efficiency and profit margin suffer against despite the fact that deposit insurance weakens
attracting new volume of deposit liabilities but this correlation (e.g., Mondschean and Opiela
setting it too low would also mean low returns 1999; Demirgüç-Kunt and Huizinga 2004).
for savers who are likely to take their savings
elsewhere and thereby, cause deposit volumes Finally, Johnson et al. (2008) confirmed the
to decline. Hence, banks must strike a balance influence of account-specific variables on interest
between margin and volume to stay competitive rates. Their findings indicate that deposit rates
(Bikker et al. 2008). and the size and maturity of deposits generally
move in the same direction—the rates increase
The empirical literature is replete with studies with the size and maturity of bank deposits.
analyzing the factors that influence deposit This is in direct contrast to bank savings which
interest rates. In particular, Kok Sorensen are typically treated in the literature as one
and Werner (2006), De Graeve et al. (2007), single entity, despite the fact that in practice,
Gambacorta (2008), and Antao (2009), analyzed banks offer various savings accounts with
the extent to which deposit rates reflect varying add-ons and conditions. An account
macroeconomic variables. They showed that may require a minimum maintaining balance,
market rate, inflation rate, and volatility of both a withdrawal fee or include a bonus rate as a
the market rate and the stock market generally reward to loyal depositors. Bikker et al. (2008)
exert a positive impact on the movements provided a summary of the expected impact
of bank deposit rates. By contrast, economic of macroeconomic and bank-specific variables
1 This section was prepared by Mr. Joel L. Campipi, Jr (SE Specialist
on savings and time deposit interest rate/s
I), Ms. Fatima Lourdes Del Prado (Bank Officer IV), and Mr. Darwin (Table 1).
Lucela (Bank Officer IV) from the OSPD. The results in the study
are preliminary. The usual disclaimer applies. 2 Inefficiency refers to cost-to-asset ratio.

Table 1. Determinants of Bank Deposit Interest Rates
Macroeconomic Determinants Bank-specific Determinants

Market rate Positive Bank risk Negative
Inflation Positive Bank size Negative
Market rate volatility Positive Foreign bank Positive
Economic growth Negative Liquidity surplus Negative
Concentration Negative Liquidity mismatch Negative
Stock market stress Positive Inefficiency2 Negative
Deposit funding Negative
Source: Bikker et al. (2008)

Building on these existing studies, this paper many regions in the Philippines are particularly
extends the analysis to the Philippine case and vulnerable to natural calamities and the
identifies possible

determinants of bank deposit corresponding loss of economic resilience
interest rate movements. Using a quarterly panel resulting from disasters. This observation also
data from the third quarter of 2014 to the fourth justifies the use of such an indicator in explaining
quarter of 2017, this paper focuses on selected movements in bank deposit interest rate. Finally,
macroeconomic and bank-specific variables this paper provides insights for policy making

to explain the median interest rates on regular and in particular, the initiatives promoting
savings deposit
and time deposit accounts greater financial and economic inclusion in the
offered by banks operating across the regions Philippines.
of the Philippines. Given the importance of

bank deposits to the Philippine banking sector, The remainder of the paper is structured in five
a better understanding
on how interest rates parts. After this discussion and a brief overview
are derived and determined is useful. This study of Philippine deposit accounts and behavior
is relevant to the ongoing efforts to raise the of deposit interest rates, the description of the
country’s savings rates and tap the underbanked model and data is provided in Section 2. This
and unbanked segments of the economy. It is followed by a discussion of the estimation
has been noted that the Philippines’ savings approach. Section 3 presents the results of the
behavior/rates at the aggregate and household estimation assessment while Section 4 offers
levels, albeit improving, remain low relative to some insights for policy and concludes.
its regional peers (Orbeta 2015; “Kiddie Savers”3,
2018) despite the BSP’s relentless pursuit of 2. Data and Empirical Methodology
making the local financial system more inclusive.
2.1. Data
Moreover, most of the studies on the subject
cover largely developed economies. This study The Philippines classifies deposit accounts into
is one of the few studies to concentrate on the demand deposit, regular peso savings, kiddie
Philippines and to use simultaneously selected savings and the peso time deposit account.
macro, bank and account-specific determinants
using the BRIS4 of the BSP. Another contribution Time deposits have a fixed maturity, usually
of the study is the integration of environment- preventing early withdrawal of the deposited
related angle to a predominantly banking issue. funds. Depositors are informed of the interest
It should be of interest for the Philippines, rate conditions on these deposits in advance.
which is prone to severe weather disturbances By contrast, savings accounts can be accessed
if environment-related trends which have the at all times and generally come with a floating
potential to impair the level and capacity of interest rate. Both types of accounts can be used
depositors to save, can actually manifest and by bank customers to deposit funds and earn
affect banking operation decisions including interest.
interest rate setting. As an agricultural country,
3 Alegado, S. (2018, March 23). ‘Kiddie’ Savers in the Philippines As shown in Figure 1, the median rates for
Just Put Away $577 Million. Bloomberg. regular savings deposit of Philippine banking
4 The BRIS is a quarterly data monitoring tool of the BSP.

First Semester 2018
system, UKBs, TBs, and RCBs from 2015 to 2017 data for the dummy variable ‘weather’5 were
remained below 0.005, except for the spike taken from the Manila Observatory, a database
observed during the third quarter of 2016 when maintained by the Ateneo De Manila University
some rural banks offered interest rates at 7.5 (ADMU) in coordination with the Philippine
percent for regular savings and 8.0 percent Atmospheric, Geophysical and Astronomical
for kiddie savings accounts. Moreover, based Services Administration (PAG-ASA).
on their assessment for the third and fourth
quarter of 2017, the BSP observed no significant 2.2. Empirical Model
difference between the median rates of banks
operating within and outside the National The choice of regressors are selected based
Capital Region (NCR). This means that median on the findings of earlier studies discussed in
rates can be used for analysis across regions. the previous section but the decision to use
regional data and include other variables such
Figure 1. Maximum, Minimum and Median Interest Rates on Regular Bank
Deposit Account: Philippines, 2015-2017 as the number of regional bank offices and the
In Percent In Percent
BSP’s overnight RRP rates was meant to provide
0.08 0.03 a more substantive and realistic approach
0.07
0.025 on relevant banking issues like the impact of
0.06
0.02
BSP policy rate and its initiatives on financial
inclusion and wider banking reach/network.
0.05
0.04 0.015
0.03
Meanwhile, the inclusion of dummy variable
‘Weather’ intends to determine the sensitivity
0.01
0.02
0.01
0.005
of bank deposit rates to weather disturbances.
0
2015q1 2015q2 2015q3 2015q4 2016q1 2016q2 2016q3 2016q4 2017q1 2017q2 2017q3 2017q4
0
These indicators are presented in Equation 1, as:
Max (LHS) Min (LHS) Median (RHS) Mean (RHS)
To determine the factors that guide the trend

(Eq.1)
and rate of bank deposit accounts, the paper
employs a dynamic Generalized Method of
Moments (GMM) model to a quarterly panel Where,
data with over 108,440 observations, covering
131,499 banking facilities in the Philippines MedDepRatei,t-1 and MedDepRatei,t-2, quarterly and
from the third quarter of 2014 to fourth quarter regional median deposit interest rates;
lnGRDPi,t, quarterly Gross Regional Domestic Product
of 2017.The data, drawn mostly from the BRIS growth;
collected on a quarterly basis by the BSP from Rinfli,t, quarterly regional inflation rates;
banks operating across the country, contain Rwagei,t, quarterly regional wages;
information on bank assets, deposits, loans, Rdepi,t, quarterly regionally-aggregated bank
volume and value as well as interest rates levied deposits;
lnRoffi,t, growth of regional banks offices and related
on regular savings deposit, kiddie savings physical units;
account, and time deposit accounts. The BRIS ORRPi,t, quarterly overnight RRP rates;
also has data on the number of bank branches Weatheri,t, dummy variable that indicates whether a
and bank satellite units per region and province. region is disaster prone (=1, otherwise, 0);
Only data for regular savings deposit and the Vi,t, panel effects (which may be correlated with the
co-variates;
30-to-59-day peso time deposit (PTD) account error (idiosyncratic) terms
covering 1 million pesos and over are used in this i,t,
study. Similarly, annual gross regional domestic To isolate and highlight the likely impact of
product as well as quarterly data on regional wage inflation and weather, we introduce minor
and inflation are collected from the database of
the Philippine Statistics Authority (PSA) to form
5 This refers to the weather distrubance data collected by the the
the set of explanatory variables. Meanwhile, Manila Observatory which is the sum of four individual risk scores
(1. risk to projected temperature increase; 2. risk to projected
rainfall change; 3. risk to typhoons; and 4. risk to El Niño).

modifications to equation 1 and remove these conditions. Another advantage of dynamic
variables in the following equations6: models and the Blundell and Bond estimator is
the use of ‘lagged’ and instrumental variables to
address heterogeneity and endogeneity.
(Eq.2) Meanwhile, the coefficients are checked using

1, 5 and 10 percent levels of significance along
with residual diagnostics and serial correlation
(Eq.3) tests. Different specifications are also used to
check the robustness of results.
A similar test was likewise performed on
the median peso time deposit interest rate 3. Empirical Results
[PTDIntRate (Y)i,t]7:
Following diagnostic tests and robustness
checks, Table 2 presents the results for all six
(6) equations. The results in Equation 1 indicate
(Eq.4) that a one percent increase in last period’s
median interest rate (L1) would result in 0.23
percent (or 23 basis points) average decrease
To better determine the possible relationships
in the current median rate, while a one percent
between regional growth and weather
increase in the past two periods (L2) would
disturbance, an interaction variable was
induce a 0.03 percent average drop in the
incorporated in Equation 5:
current median interest rate from the third
quarter of 2014 to the fourth quarter of 2017.
A somewhat identical coefficient for the lagged
terms was generated for Equations 2 to 4. The
results also indicate that over the review period,
on average, the median rates have risen.
(Eq.5)
On the explanatory variables, regional GDP
2.3. Estimation Approach
growth and the banks’ quarterly deposits
aggregated per region have negative effect on
The parameters are estimated using a dynamic
the median interest rate as shown in Equations
panel model, in particular the Arellano-Bover/
1 and 2. This result is consistent with the
Blundell-Bond panel data estimation, derived
findings suggested in the literature in particular
from Arellano and Bond’s generalized method
Park and Peristiani (1998) who found a negative
of moments (GMM) estimator. The Blundell and
relationship between real GDP growth and
Bond’s system GMM estimator is appropriate for
interest rate. The finding suggests that higher
short panels, i.e. data sets containing only a few
real income increases the supply of deposits
time periods and many entities such as financial
(in the form of savings from deposits) that in
institutions considered in the paper. The data set
turn might, trigger an interest rate decrease.
contains 14 periods which are relatively short
Economic growth may also negatively affect
so the Blundell and Bond’s estimator is deemed
bank clients’ demand for loans, which might
appropriate. With more panels and few periods,
lead to decrease in the loan rate and/or to a
the Blundell and Bond estimator is constructed
decline in banks’ demand for deposits (Bikker
by first-differencing to remove the panel-level
et. al 2008).
effects and using instruments to form moment
6 A slight modification to Equation 2 was included to incorporate

Meanwhile, the absence of weather disturbance
lag variables to counterbalance the presence of serial correlation. has a positive effect on median interest rate as
7 A slight adjustment we made in the equation and swap bank depositors will be inclined to keep their deposits
deposit (Rdep) with bank loans after noting that it satisfies in banks. Similarly, an increase in regional wage,
the Blundell and Bond’s no second-order autocorrelation as well as growth or improved access to bank
requirement. Loan refers to regionally-aggregated bank loans.

First Semester 2018
offices are found to be positively associated following a one percent change in GRDP and
with the median interest rate on deposits. a better weather condition. Meanwhile, severe
weather conditions are associated with a slight
Moreover, inflation and overnight RRP rates are uptick in deposit rates.
seen to negatively affect the median interest
rate. This indicates that banks tend not to Moreover, the same test was performed for
rely heavily on the RRP rates as basis for the peso time deposit median rate for accounts
bank interest spread. It is for this reason that under the 30-59 day term for high value
a slightly revised specification was introduced accounts covering 1 million pesos and over.
in Equation 4, where the ORRP variable was Results in Equation 6 show that of the identified
omitted. Contrary to what is identified in regressors, only the overnight RRP rates and
Table 1, when the ORRP was omitted, inflation the last period’s median peso time deposit rate
rate became positively correlated with bank (L1) are significant, though the coefficient is
interest rate. Intuitively, when interest rates negative. Understandably, banks tend to park
rise, consumers tend to save as the returns their excess funds with the BSP when the ORRP
from savings are higher. With lesser money to rate offers higher rates.
spend due to interest rate hike, inflation rate
decreases. Omitting the ORRP also resulted in a 4. Conclusion and Policy Implications
slight increase in the coefficient of lag 2 of the
dependent variable and the quarterly, regional The findings in this study provide evidence that
inflation rate which became insignificant. greater access to banking facilities, movement
in ORRP rate, higher wages and better economic
Removing inflation and weather variables in and weather conditions, and the size of banks’
Equation 3 yielded an almost similar result aggregate deposit (loans in the case of peso
in Equations 1 and 2, except for the positive time deposit) are significant drivers of the
coefficient for aggregate bank deposit and behavior of median bank deposit interest rates
the negative, insignificant sign for bank access in the Philippines from the third quarter of 2014
variable. A likely explanation for this is that to the fourth quarter of 2017.
during the period of low inflation and good
weather condition, more resources and funds The results likewise provide empirical support
are available that will enable depositors to to some of the widely held assumptions
keep their deposit accounts longer in the associated with determinants of deposit interest
bank, which makes for a favorable and bigger rate such as financial access and expanded
aggregate deposit base. This result reinforces banking network, wages and better economic
the earlier assertion about how the absence of conditions. It appears that enhanced access to
weather disturbance and higher deposit supply banking services, as evidenced by the growing
could induce an increase in the median interest number of banking facilities can lead to higher
rate for bank deposits. Equation 2 was slightly interest rate for deposits as banks compete
modified with the inclusion of lagged variables to retain and attract depositors. Of significant
to address the serial correlation detected. Except interest too are the results indicating that better
for the positive but insignificant coefficient economic conditions, as demonstrated by low
for ORRP rate, the results in Equation 2A are inflation and higher GRDP growth rates, can
not too different from the original Equation 2 have a dampening/inhibiting effect on bank
estimates. Meanwhile, Equation 3 generated a deposit rate. This is consistent with the findings
negative but insignificant coefficient for bank on liquidity surplus and economic growth in the
access (i.e., lnoffices). literature as presented in the summary table of
Bikker et al. (2008).
To highlight possible relationship between
regional growth and weather disturbance, and Noting that improved access to banking services
the likely impact on bank deposit rates, an and greater banking competition are associated
interaction term was incorporated in Equation with higher deposit interest rates should
5. The results, albeit modest, suggest that hold special relevance and practical insights
bank deposit interest rate is likely to decrease to policymakers, industry practitioners and

banking clients. In particular, the establishment Bikker, J.A., and Gerritsen, D. (2017), ‘Determinants
of bank branch-lite units in numerous areas in of Interest Rates on Time Deposits and Savings
the country will help facilitate greater access to Accounts: Macro Factors, Bank Risk, and Account
efficient and competitive financial products and Features’, International Review of Finance 2017
services, thus enabling banks to expand their
network in a more efficient and cost-effective Demirgüç-Kunt, A., and H. Huizinga (2004),
manner, while benefiting depositors through ‘Market Discipline and Deposit Insurance’,
higher deposit interest rates. With improved Journal of Monetary Economics, 51, 375–99.
access to banking services associated with higher
bank deposit interest rates, consumers would Gambacorta, L. (2008), ‘How do Banks Set Interest
also be more likely to place their funds in banks Rates?’ European Economic Review, 52, 792–819.
instead of shadow banking. Circular No. 987
dated 28 December 2017 laid out the guidelines Hori, M., Y. Ito, and K. Murata (2009), ‘Do
on the establishment of bank branch-lite units Depositors Respond Rationally to Bank Risks?
anywhere in the country to facilitate greater Evidence from Japanese Banks During Crises’,
access to efficient and competitive financial Pacific Economic Review, 14, 581–92.
products and services. The new guidelines also
rationalize the current classifications of banking Imai, M. (2006), ‘Market Discipline and Deposit
offices such as extension offices (EOs), other Insurance Reform in Japan’, Journal of Banking &
banking offices (OBOs) and micro-banking Finance, 30, 3433–52.
offices (MBOs) under the branch-lite framework.
As of end-June 2018, the number of branch-lite Johnson, R. M., D. R. Lange, and J. A. Newman
units already reached 1,753, accounting for more (2008), ‘The Market for Retail Certificates of
than 15 percent of the 11,485 banking offices Deposit: Explaining Interest Rates’, Financial
(excluding head offices) in the country. Services Review, 17, 257–71.
The findings should thus encourage banks Kok Sørensen, C., and T. Werner, (2006), ‘Bank
and their clients to place greater weight and Interest Rate Pass-through in the Euro Area: A
consideration to the banking sector and other cross Country Comparison’, ECB Working Paper
formal financial channels in their savings Series, 580.
decisions, given the higher potential earnings
plus the security and convenience offered by Martinez Peria, M. S., and S. L. Schmukler (2001),
these institutions under a highly competitive ‘Do Depositors Punish Banks for Bad Behavior?
environment. The findings may also encourage Market Discipline, Deposit Insurance, and
bankers to rethink their business models, Banking Crises’, The Journal of Finance, 56, 1029–
particularly their pricing strategy. Finally, the 51.
study indicates some practical insights to
policymakers especially with regard to fostering Mondschean, T. S., and T. P. Opiela (1999), ‘Bank
and encouraging greater competition in unserved Time Deposit Rates and Market Discipline in
and underserved areas where informal financial Poland: The Impact of State Ownership and
services are known to prosper and thrive. Deposit Insurance Reform’, Journal of Financial
Services Research, 15, 179–96.
References:
Murata, K., and M. Hori (2006), ‘Do Small
Antao, P. (2009), ‘The Interest Rate Pass- Depositors Exit from Bad Banks? Evidence from
through of the Portuguese Banking System: Small Financial Institutions in Japan’, Japanese
Characterization and Determinants’, Banco de Economic Review, 57, 260–78.
Portugal Working Paper 5. Banco de Portugal.
Beyhaghi, M., C. D’Souza, and G. S. Roberts (2014),

‘Funding Advantage and Market Discipline in the
Canadian Banking Sector’, Journal of Banking &
Finance, 48, 396–410.

18
Table 2. Estimation Results
Dependent Variable (DV): Median Deposit Rate DV: Median Peso Time Deposit Rate
Time period covered: 3rd Quarter 2014 - 4th Quarter 2017 Time period covered: 3rd Quarter 2014 -
First Semester 2018
4th Quarter 2017

Equation (1) Equation (2) Equation (2A) Equation (3) Equation (4) Equation (5) Equation (6)
L1. -0.231*** -0.240*** -0.249*** -0.204*** -0.234*** -0.237*** L1. -0.209**
(0.0123) (0.0113) (0.0128) (0.0126) (0.0121) (0.012) (0.069)
L2. -0.034*** -0.052*** -0.044*** -0.028* -0.044*** -0.025* L2. -0.103
(0.010) (0.009) (0.009) (0.011) (0.010) (0.010) (0.066)
L3. -0.187
(0.098)
Log (GRDP) -0.001*** -0.001*** -0.002*** -0.001*** -0.001*** -0.002*** Log (GRDP) -0.206
Office of Supervisory Policy Development

(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (2.168)
Inflation -0.000*** 0.000 -0.000*** Inflation -0.080
(0.000) (0.000) (0.000) (0.129)
Wage 0.000*** 0.000*** 0.000** 0.000** 0.000*** 0.000*** Log (Wage) -0.940
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (6.430)
Deposits -0.000*** -0.000*** -0.000*** 0.000*** -0.000*** -0.000*** Log (Loan) 0.013
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.462)
Log (Regional offices) 0.002*** 0.001*** 0.002*** -0.000 0.002*** 0.002*** Log (Regional offices) 0.423
(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (2.604)
Overnight RRP rates -0.000*** -0.000*** 0.000 -0.000*** -0.000*** Overnight RRP rates -0.447***
(0.000) (0.000) (0.000) (0.000) (0.000) (0.045)
Weather -0.002*** -0.002*** -0.002*** -0.002*** -0.011*** Weather -0.025
(0.000) (0.000) (0.000) (0.000) (0.003) (1.640)
Weather*Log(GRDP) 0.00043***
(0.000)
_cons 0.022*** 0.014*** 0.024*** 0.017*** 0.021*** 0.035*** _cons 8.781

(0.002) (0.002) (0.003) 0.002 0.002 -0.035 (7.476)
N 108440 108440 108440 108440 108440 108440 N 48536
Wald test, Chi-square Wald test, Chi-square
(p-value) 3326(0.0000) 2732(0.0000) 5007(0.0000) 3111(0.0000) 2402(0.0000) 8126(0.0000) (p-value) 11653(0.0000)
Artests(AR2) 0.0986 0.0176 0.0801 0.1325 0.0673 0.1895 AR(3) 0.3071
Note: * p<.05; ** p<.01; *** p<.001; Standard errors are reported in parentheses; We made a slight adjustment in the equation and swapped bank deposit (Rdep) with bank loans after noting that using it
as a regressor satisfies the Blundell and Bond’s no second-order autocorrelation requirement. The variance-covariance estimate, i.e., vce(robust), option employed in these equations produces standard errors
that are robust to both heteroskedasticity and serial correlation.
Source: Authors.
18
Financial Soundness of the
Philippine Banking Sector1
Overview
Financial soundness indicators (FSIs) are set The adequacy of capital provides the buffer for
of indicators used to determine the current risk-taking activities. Figure 20 shows the risk-
financial health and soundness of the financial based CAR and Tier 1 ratios, which are based on
institutions in a country including their corporate the definitions used in the Basel Capital Accord.
and household counterparts. They include both These two are the most common measure of
aggregated and individual institution data. These
indicators are representative of the markets in capital adequacy.
which the financial institutions operate.
From Q2 2014 to Q2 2018, both the CAR and Tier
The FSIs are calculated and disseminated for 1 ratios of Philippine U/KBs were well above the
the purpose of supporting prudential analysis. BSP and Basel minimum capital requirements of
This section discusses the relative strength 10 percent and 8 percent, respectively, indicating
and sources of vulnerabilities of the Philippine that U/KBs are well prepared to withstand shocks
banking system, with the objective of enhancing to their balance sheets.
banking stability and in particular, limiting the
likelihood of failure of the financial system.
An empirical study conducted by OSPD staff
The BSP Financial Soundness Indicators examined the motives behind U/KBs’ propensity
to maintain “excess” capital based on the moral
Based on the methodology introduced by the hazard and capital buffer theories . The results
3
International Monetary Fund (IMF), a core set of suggest that the U/KBs have lesser pressure
FSIs covering Philippine banks were identified (or incentive) to adjust their qualifying capital
under the headings of capital adequacy, asset but are more inclined to adjust the size of their
quality, earnings and profitability, liquidity, and portfolios, structure and risk exposure to manage
sensitivity to market risk. This is commonly capital surpluses in the short-term and medium-
known as the CAELS2 framework used by banking
term. In addition, U/KBs that have lower capital
supervisors to assess the soundness of individual
institutions. relative to their peers tend to quickly adjust their
capital ratios.
Capital Adequacy
Meanwhile, the capital buffer theory4 likewise
holds true for most U/KBs in the Philippines and
Figure 20
Regulatory Capital to Risk-Weighted Assets (CAR) and
Regulatory Tier 1 Capital to Risk-Weighted Assets (Tier 1)
of Universal and Commercial Banks the adoption of Basel III did not result in moral
hazard problem.5 Instead, U/KBs have become
Q2 2014 – Q2 2018, In Percent (%)
18.0
16.0 more risk-sensitive as U/KBs try to rebuild

14.0
an appropriate buffer by raising capital while
12.0
simultaneously lowering risk.
10.0
An important indicator of the capacity of capital

8.0
to withstand losses from NPLs (unsecured

6.0
CAR Tier 1 BSP 10% minimum Basel 8% minimum
Source of data: Supervisory Data Center (SDC), Office of Supervisory Policy

portion) is the ratio of NPLs net of provisions to
Development (OSPD) Staff calculations
3 C. Layaoen and V. Domantay-Mailig (2018), “Do Capital Regulation

Influence Banks Holding of “Excess” Capital?” A preliminary
1 The analysis in this section is based on the International Monetary version of the study was included as a box article in the BSP Second
Fund (IMF) Financial Soundness Indicators – Compilation Guide Semester 2017 Report on the Philippine Financial System.
(2006). Prepared by Mr. Francis C. De Leon (Bank Officer IV) of 4 The capital buffer theory highlights that the size of banks’ capital
the Office of Supervisory Policy Development (OSPD). The usual affects their behavior towards capital and risk.
disclaimer applies. 5 The moral hazard theory predicts that banks with capital buffers
2 This is also known as the CAMELS framework, minus—for FSI may take greater risks than they would do without them because
purposes—the “M”, which represents the quality of management. they know they are adequately covered.

First Semester 2018
capital. This ratio can help detect situations where of end-June 2018. Hence, the most important
banks may have delayed addressing asset quality indicator to measure asset quality is the ratio of
problems, which can become more serious over NPLs to total gross loans.
time.
Figure 23
Figure 21 Nonperforming Loans to Total Gross Loans (NPL ratio) of
Nonperforming Loans Net of Provisions to Capital (Net NPL the Philippine Banking System
ratio) of the Philippine Banking System Q2 2008 – Q2 2018, In Percent (%)
Q1 2013 – Q2 2018, In Percent (%) 5.0
1.0
4.2
0.9
3.4
0.8
0.7 2.6
0.6
1.8
0.5
1.0
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Net NPL ratio
NPL ratio
Source of data: SDC
Source of data: SDC
Figure 21 shows that, while the net NPL ratio of From Q2 2008 to Q2 2018, the single-digit NPL
the Philippine Banking System has risen from Q1 ratio of the Philippine Banking System continued
2013 to Q2 2018, it is not a cause for concern as to decelerate, reflecting gains from regulatory
the ratio remained modest at 0.9 percent as of reforms and standards (Figure 23).
end-June 2018.
It is interesting to note that the NPL ratio kept
The capital-to-assets (CTA) ratio is used to its downward trajectory despite rigorous
measure the extent to which assets are funded amendments to the regulatory definition of NPLs
by the banks’ own funds. It is also an alternative in January 2017.6
measure of the capital adequacy of the banking
sector. Meanwhile, the issuance of guidelines on Risk
Management System7 strengthened the credit
Figure 22 risk management of the BSFIs.
Capital-to-Assets of the Philippine Banking System
Q2 2008 – Q2 2018, In Percent (%)
15.0 Loan concentration in a specific economic sector
13.6
or activity makes banks vulnerable to adverse
development in that sector or activity. Hence,
12.2
these particular sectors of the economy should be
10.8
closely monitored for macroprudential purposes.
9.4
8.0 As shown in Figure 24, the sectoral distribution

of loans in the Philippine economy does not
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
show any significant change during the period

Capital to Assets ratio
(Q1 2014 to Q1 2018), with non-financial
Source of data: SDC
corporations (NFCs) capturing the biggest share
For the Philippine Banking System, the CTA ratio 6 Under Circular No. 941 dated 20 January 2017, loans shall be
was stable at 12.4 percent as of end-June 2018 considered non-performing, even without any missed contractual
(Figure 22), signifying that a reasonable level of payments, when it is considered impaired, meaning there is
bank assets is backed up by banks’ own funds. objective evidence that its recoverable value is less than its carrying
amount due to one or more loss events that adversely affects the
Asset Quality estimated future cash flows of the said loan. All other loans, even
if not considered impaired, shall be considered non-performing
based on traditional regulatory definition, i.e. past due for more
Philippine banks are largely traditional (business than 90 days (principal or/and interest), classified as doubtful or
model of lending and deposit taking) with the loss, or under litigation.
TLP representing 59.6 percent of total assets as 7 Under Circular No. 510 dated 3 February 2006 and Circular No. 855
dated 29 October 2014.

at around 49 percent, followed by households Meanwhile, the annualized ROA of the Philippine
at around 20 percent. Because of their systemic Banking System has been recorded at above 1
importance, private corporations (i.e. aggregate percent from Q4 2009 to Q2 2018.
loans to banks, other financial corporations, and
NFCs) and household sectors are commonly Moving forward, there seems to be ample room
monitored for any signs of overheating leading to increase bank exposure and, in turn, improve
to loan quality deterioration. profitability based on the banking industry’s
Basel III Leverage Ratio.9 The Basel III Leverage
Figure 24 Ratio stood at 8.3 percent on consolidated
Sectoral Distribution of Loans to Total Loans of the
Philippine Banking System basis as of end-March 2018, lower than the 9.0
Q1 2014 – Q1 2018, In Percent (%)
100
percent ratio in end-March 2017 but well above
90
Non-residents
the BSP regulatory threshold of 5.0 percent and
Households
80
70 MSMEs the international minimum of 3.0 percent.10
60 Agri-agra
Accounting data on bank margins and expenses

50 NFCs
40 Fin Corp
30 Govt are also widely-used indicators of bank
20
10
BSP
Banks
profitability.
0
Mar-14
Jul-14
Nov-14
Mar-15
Jul-15
Nov-15
Mar-16
Jul-16
Nov-16
Mar-17
Jul-17
Nov-17
Mar-18
Figure 26
Net Interest Margin and Cost-to-Income Ratio of the
Source of data: SDC Philippine Banking System
Q2 2008 – Q2 2018, In Percent (%)
80.0
In the case of the Philippine banking system, Box 74.0
Article 2 indicates that loan quality will continue 68.0
to remain stable amid sustained loan growth 62.0
and macroeconomic shocks, given that banks 56.0
are more prudent in their lending decisions as 50.0

Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
espoused under regulatory reforms.8
Net Interest Margin Cost-to-Income ratio
Earnings and Profitability Source of data: SDC
Common operating ratios used to assess bank The net interest margin (NIM) ratio exhibits an
profitability include net income to average total upward trend between Q2 2008 and Q2 2018
assets, also known as annualized return on assets from 62 percent to 75 percent (Figure 26). This
(ROA), and net income to average equity—also suggests that the bulk of the income continues
known as annualized return on equity (ROE). to come from lending activities.
Figure 25
Annualized Return on Assets (ROA) and Annualized Return
on Equity (ROE) of the Philippine Banking System The annualized cost-to-income (CTI) ratio, an
Q2 2008 – Q2 2018, In Percent (%)
indicator of operational efficiency, has stabilized
Chart Title
from a record high of 74 percent in Q4 2008 to
ROE ROA
16.0 2.5
14.0 2.1 around 63 percent due to cost rationalization

12.0 1.7 achieved through digital banking solutions,
10.0 1.3 network expansion, and wider customer reach.
8.0 0.9
6.0 0.5
Liquidity
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
A common measure of liquidity is the ratio of

ROE ROA
Source of data: SDC liquid assets to total assets (liquid asset ratio),
which indicates the extent of the bank’s liquidity
The annualized ROE of the Philippine banking buffer.
system stabilized at around 10 percent (Q2 2015
to Q2 2018) and still reflecting a decent double-
digit gain for shareholders (Figure 25).
9 The ratio is expressed as percentage of: Basel III Leverage Ratio
8 R.Cachuela (2018). “Does Expansion of Bank Lending Lead to (%) = Capital Measure (Tier 1 Capital) / Exposure Measure.
Weakening of Loan Quality in the Philippines?” (Box Article 2). 10 OSPD Banking System Risk Analysis (BSR) as of end-March 2018.

First Semester 2018
Figure 27 Meanwhile, the ratio of deposits to total

Liquid Assets to Total Assets (Liquid Asset Ratio) and Liquid
Assets to Deposits Ratio* of the Philippine Banking System (non-interbank) loans13 is also used to detect
Q2 2008 – Q2 2018, In Percent (%)
62.0 BSP limits the access to SDA facility
liquidity problems—a low ratio might indicate
potential liquidity stress in the banking system
and perhaps a loss of depositor and investor
54.0
46.0
confidence in the long-term viability of the
38.0 sector.
30.0
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Figure 28
Deposits to Total (Noninterbank) Loans of the Philippine
Liquid Asset ratio Liquid Assets to Deposits ratio
Banking System
Source of data: SDC Q2 2008 – Q2 2018, In Percent (%)
180.0
The liquid asset ratio of the Philippine Banking 168.0
System was quite high at above 35 percent for 156.0

the period Q2 2008 to Q2 2018 (Figure 27). This 144.0
suggests the presence of sufficient liquidity in
132.0
the system.
120.0
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
However, the ratio has declined from 40.5
percent in end-March 2014 to 32.5 percent in
Deposits to Total (Noninterbank) Loans
Source of data: SDC

end-June 2018 following the move of the BSP
to limit the access of banks/trust departments
to the Special Deposit Account (SDA) facility Although the trend is going down, the ratio
beginning January 2014.11 is well above the 130 percent mark during
the period Q2 2008 to Q2 2018 (Figure 28),
Another measure of liquidity is the ratio of which indicates a one-to-one correspondence
liquid assets to deposits (a proxy for short-term between stable source of funds (deposits) to
liabilities). This ratio indicates the amount of illiquid use of funds (non-interbank loans).
deposits that would have to be covered by sale
of liquid assets if access to funding becomes Sensitivity to Market Risk
unavailable. Figure 29
Net Foreign Exchange (FX) Position to Unimpaired Capital*
of Universal and Commercial Banks
The liquid assets-to-deposits ratio was also quite Q2 2011 – Q2 2018, In Percent (%)
1.5
high at above 46 percent during the period as 1.0
banks continued to hold liquidity buffer against 0.5
shocks. 0.0
-0.5
Parallel to this, the BSP adopted the enhanced -1.0
liquidity risk management framework which

-1.5
Net FX position to unimpaired capital
includes the amended Basel III Liquidity *Proxy for Net Open Position in Foreign Exchange to Capital
Coverage Ratio (LCR), Minimum Liquidity Ratio Source of data: SDC
(MLR), and Basel III Net Stable Funding Ratio

(NSFR) standards.12 The MLR, which relates the The most common measure of foreign exchange
amount of a bank’s eligible liquid assets to its exposure is the ratio of net FX position to
total liabilities, is set at 20 percent. This will unimpaired capital as shown in Figure 29.
be applicable to stand-alone thrift, rural and
cooperative banks. The ratio indicates the capacity of banks’ capital
to withstand foreign exchange losses.
11 Under Memorandum No. M-2013-021 dated 17 May 2013.
Further, the BSP discontinued the access of trust entities to From Q2 2011 to Q2 2018, the net FX position
the BSP deposit facilities, particularly the Overnight Deposit to unimpaired capital of U/KBs hovered around
Facility (ODF) and Term Deposit Facility (TDF), starting July 2017
the -1.0 percent (oversold) to 1.0 percent
(Memorandum No. M-2016-016 dated 18 November 2017).
12 Under Circular No. 996 dated 8 February 2018 and Circular No. 13 Noninterbank loans refer to TLP less interbank loans (IBL). This
1007 dated 6 June 2018. also represents the core loans of the banking system.

(overbought) band (Figure 29), indicating that
the banking system is well cushioned to absorb
volatilities in the FX market.
Implications on Microprudential Policy
The financial soundness indicators suggest that the

Philippine banking system is stable. Meanwhile,
the findings of the BSP empirical studies in this
section implies that consequent risks from lending
should be monitored especially in the event of
excessive uncertainties that could place additional
pressures on the banking system in the short and
medium run.
In particular, intense supervisory engagement with

banks should continue to supplement the close
monitoring and surveillance activities currently
being employed for these types of credit exposure.
The Financial Supervision Sector’s Surveillance
Loop and Early Intervention Framework will serve
as guiding frameworks in monitoring banks’ risk
management system.

First Semester 2018
Box Article 2
Does Expansion of Bank Lending Lead to

Weakening of Loan Quality?1
1. Introduction
The role of credit in the economy is vital as it With the Philippine economy on a higher
growth trajectory of at least six percent3 growth
allocates resources to the various activities within
the economy, particularly to fund investments since 2012, credit growth4 has expanded by
and smoothen consumption through time. 15.1 percent, on average, from 2012 to 2017.
However, credit growth is not without its pitfalls.Moreover, the NPL growth was modest during
Too much credit growth can lead to inflated that span, averaging at 6.4 percent. This resulted
asset prices and an overheated economy. in a decline in the NPL ratio from 3.0 percent
Moreover, the procyclicality of credit – that is, as of end-January 2012 to 1.7 as of end-
during booms, credit grows robustly, whereas December 2017. Against this macroeconomic
in times of crisis, credit dries up – tends to and regulatory backdrop, this study analyzes
amplify business cycles. Another attendant risk whether the expansion of bank lending in the
to credit growth, the growth of NPL, warrants Philippines, indeed, leads to a weakening of
careful attention as worsening credit quality has loan quality. It is expected that loan quality will
negative implications on financial stability and not deteriorate significantly or remain relatively
could cause potential systemic risk. stable amid sustained loan growth, given
that banks are more prudent in their lending
Learning from the crisis episodes of the 1997 decisions as espoused by regulatory reforms.
Asian Financial Crisis and the 2017-2008 Global
Financial Crisis (GFC), lending activities of 2. Survey of Empirical Related Literature
Philippine banks are now expected to be more
risk-sensitive. This is because macroprudential There have been countless empirical studies on
and microprudential reforms have been the relationship between the growth of credit
instituted as part of the Basel standards to and NPL. In general, most studies found a
strengthen the resilience and risk management positive impact of bank credit growth on NPL.
of banks. The BSP, with the implementation of Moreover, there is widespread evidence in the
Basel III Framework through Circular No. 781 literature that supports the argument that loan
dated 15 January 2013, has introduced reforms quality improves with an upturn in economic
to beef up capital requirements as well as activity.5 The increase in real interest rates,
introduce additional buffers . These regulatory which affects financing costs and the ability to
2
measures are in place so as to ensure that risk- service debt for borrowers, showed a positive
taking activities by banks are met with sufficient relationship with NPLs according to most studies.
capital buffers. In relation to this, the literature is also replete
with discussions on determinants of NPLs,
particularly, its dynamics with macroeconomic
and bank-specific indicators.
1 This section was prepared by Mr. Rafael Augusto D. Cachuela,

The macroeconomic determinants discussed
Bank Officer III, OSPD. The usual disclaimer applies. in the literature can be divided into four major
2 The BSP implemented new minimum capital ratios of 6.0 percent categories: (a) economic activity (GDP growth,
Common Equity Tier 1 (CET1) ratio, 7.5 percent Tier 1 ratio
and 10.0 percent Total Capital Adequacy Ratio (CAR). A capital 3 Annual real gross domestic product year-on-year growth: 2012 –
conservation buffer (CCB) of 2.5 percent, comprised of CET1 6.7%; 2013 – 7.1%; 2014 – 6.1%; 2015 – 6.1%; 2016 – 6.9%; 2017
capital was also prescribed. This buffer is meant to promote the – 6.7%.
conservation of capital and build up of adequate cushion that 4 Year-on-year growth of gross total loan portfolio
can be drawn down by banks to absorb losses during periods of 5 Refer to the paper of Chavan and Gambacorta (2016) for a
financial and economic stress. comprehensive survey of studies.

gross capital formation, exports, unemployment Analyzing the Spanish banking sector using
rate); (b) cost of credit (real lending rate or policy dynamic panel GMM, Salas and Saurina (2002)
rate); (c) collateral (stock or housing prices); and Jimenez and Saurina (2006) found a similar
and (d) vulnerability to external sector shocks conclusion with regard to the relationship of
(exchange rate, foreign currency borrowings). loan growth and NPL growth – that is, there is
a lagged positive correlation between credit
Moreover, movements of NPLs can also be growth and loan losses. In an earlier study,
influenced by some bank-specific characteristics Keeton (1996) looked at US banks using VAR
which can be divided into five broad categories6: methodology and noted a positive impact of loan
(a) efficiency-related determinants (banks that growth on loan delinquencies. Joh and Jeong
are efficiently managed have better loan quality); (2017) examined the effects of prudent bank-
(b) leverage-related and capital-related (low- specific characteristics on lending behavior and
capitalized banks may tend to take on more risks performances controlling for macroeconomic
and have higher NPLs); (c) diversification-related conditions before and after the GFC of all US
determinants (banks with a more diversified commercial banks. Using a panel fixed effects
range of activities tend to have better loan approach, the authors found that post-GFC
quality); (d) determinants related to the nature of crisis, prudent banks decreased their lending
exposures, including the sectoral/ geographical compared to prior-GFC crisis. Moreover, they
distribution of loans and the collateralized found that aggressive lending leads to higher
nature of loans (the concentration of loans in excess NPL growth7.
a particular sector/geographical region could
tend to increase NPLs, while collateral backing Empirical studies which look at the relationship of
to loans could weaken banks’ credit standards, loan growth and NPL in the Philippines, however,
leading to higher NPLs during a credit upturn); seem to be limited. Albert and Ng (2012) studied
(e) profitability-related determinants test if more the effects of shocks to macroeconomic variables
profitable banks have a greater tendency to take on NPL, as well as on the CAR of banks using
on risks, and hence, show higher NPLs. panel VAR of aggregate data by industry groups
of the Philippine banking system (i.e. U/KBs;
Turning to the findings of empirical studies, TBs; and RCBs). Macroeconomic variables used
the paper by Chavan and Gambacorta (2016) in the study include USD-PHP exchange rate,
analyzed the procyclicality of NPL in India in Philippine Stock Exchange Index, including the
relation to loan growth and determinants of volume of production index, inflation rate, and
NPLs using a dynamic panel Generalized Method lending rate on all maturities. A stress scenario
of Moments (GMM) framework. The authors wherein a temporary but significant slowdown of
regressed the NPL ratio against a baseline model the economy (i.e. two standard deviation shocks
of lagged NPL ratio, log difference of total loans, to macroeconomic variables) implemented in
real GDP growth, real interest rates, and the this study was found to have a minimal impact
share of foreign banks in the banking system. on the NPL and CAR.
The authors then modified the baseline model
to include macroeconomic and bank-specific 3. Empirical Methodology
determinants of NPL. The study found a long-
run effect of bank credit growth on NPL – that 3.1 Model and Estimation Method
is, a one percentage point growth in credit in
the preceding three years led to an increase in A panel VAR methodology is used in this
NPL ratio by 4.3 percent. Moreover, the results study in order to ascertain how shocks to the
showed that higher real interest rates have a macroeconomic environment feed into bank-
positive impact on the NPL ratio, while higher specific characteristics, which in turn, affect
GDP growth has a negative impact. banks’ lending decisions and loan quality in the
short and medium term.
7 Excess NPL growth is growth of NPL over time in excess of Asset

6 Chavan and Gambacorta (2016). growth over time.

First Semester 2018
Panel VARs have the same structure as typical 3.2 Data

VAR models, in the sense that all variables are
assumed to be endogenous and interdependent. This study uses a panel of bank-level data
The difference is that a cross sectional dimension of 53 banks (36 U/KBs and 17 TBs) from the
is added, which accounts for unobserved first quarter of 2012 to the fourth quarter of
individual heterogeneity. A panel VAR model (of 2017 obtained from the Financial Reporting
order p) may be represented by the reduced- Package submitted by banks to the BSP. Data
form equation. on macroeconomic variables such as real GDP
and inflation are obtained from the PSA. The
monetary policy rate, specifically the ORRP8, and
the average lending rate of banks are obtained
(eq. 1) from the BSP database. Variables are then tested
for stationarity using Panel Unit Root tests and
are differenced accordingly.
where is Y_t a vector of endogenous variables,
A_0,A_1…,A_p are matrices of coefficients to be Real GDP is used as a measure of economic
estimated, and e_t is a vector of forecast errors activity and income. Upbeat economic growth
that may be contemporaneously correlated but can be accompanied by high credit growth, but
are uncorrelated with their own lagged values it can also dampen the growth of bad loans.
and uncorrelated with all of the right-hand side Inflation, monetary policy rate and average
variables. The index b represents each bank. The lending rate can affect the supply and demand
specified panel VAR model in this study follows for credit, as well as the ability of borrowers
the macroeconomic and bank-specific variables to repay loans. As to bank-specific variables,
suggested in the literature. Macroeconomic the CAR is used as a proxy for the regulatory
variables used in this study include real GDP reforms and prudent behavior. Banks with high
growth, inflation and monetary policy rate capital adequacy ratios, high stable funding
whereas, bank-specific variables include ratios (i.e., high reliance on core deposits rather
average lending rate of Philippine banking than wholesale funding) are considered to be
system, CAR, deposit liabilities, gross TLP, and prudent and therefore, expected to take less
NPL. Macroeconomic variables are used since risk. A possible extension of this paper, then,
systemic risks arising from credit and capital can is to use other capitalization, liquidity and
potentially come from these variables. profitability indicators.
Through an impulse response function, a VAR 4. Empirical Results

model can analyze the dynamic impact of
one-time shocks on the system of variables. Impulse response functions show that the NPL
A Cholesky ordering of endogenous variables growth responds moderately to positive shocks
in the model followed this order: real GDP, to inflation, monetary policy rate and average
inflation, monetary policy rate, average lending lending rate. Such result is encouraging given
rate, deposit, CAR, total loan portfolio, and that existing studies show a substantial adverse
non-performing loans. This is to trace one-time impact of higher cost of borrowing on the NPL
shocks from macroeconomic variables to bank- (i.e. higher NPL growth). As expected, strong
specific characteristics, then to the variables of economic growth has a significant impact on
interest (i.e. loan growth and non-performing lowering the NPL. Conversely, a negative shock
loans). to economic growth would have a modest
impact on the rise of NPLs, albeit briefly. With
The lag length of the VAR model is determined respect to the variable of interest in this study,
using the Akaike Information Criterion. the response of the growth of NPL to shocks
Moreover, the VAR model is deemed to be stable to growth in TLP is found to be modest,
given that all of the inverse roots are inside the highlighting that growth in the NPL remains
unit circle.
8 In the future, the paper will be extended to use/include the Term
Deposit Facility (TDF) rates.

stable amid growth in TLP. The simulation insignificant impact on the growth of bank loans
showed that after a positive response to TLP in the first six quarters after the shock. Meanwhile,
growth after three quarters, the NPL actually a higher monetary policy rate was likewise
declines after five quarters before stabilizing in insignificant in increasing non-performing loans
the succeeding periods. From the above results, (NPL) in the first three quarters after the shock.
one could therefore, get a good picture of the In fact, NPL growth declines after four quarters
quality of borrowers that the banks lend to; or after the shock. Moreover, this underscores that
stated differently, banks are risk-sensitive in the a gradual tightening would not disrupt lending
granting of loans. Furthermore, the SLOS offers activity and loan quality significantly.
insights to the credit standards9 employed by
commercial banks in their lending decisions, 5. Conclusion
as well as factors affecting the credit supply of
and demand for loans by both enterprises and This study shows that Philippine banks continue
households. Results of the latest SLOS show to be risk-sensitive in their lending behavior
that majority of the respondent banks reported as quality of loans remained relatively stable
broadly unchanged credit standards10. amid adverse shocks to the macroeconomic
environment and more importantly, amid
With regard to loan growth, positive shocks to sustained credit growth. Simply put, banks have
growth in real GDP are found to be significant just not lent more, but lent to capable borrowers
with respect to growth in TLP. Such a finding as well. Furthermore, vigilant monitoring
underscores the procyclicality of credit growth of banks’ lending standards is expected to
with economic activity. Meanwhile, positive continue, moving forward. This is as long-
shocks to inflation and monetary policy rate standing Basel reforms have ingrained a strong
were found to negatively impact the growth in risk management culture in Philippine banks
TLP in the initial quarters, after which the impact and the recently instituted reforms of Basel III
diminishes. Higher average lending rates, will only serve to reinforce that culture.
meanwhile, had a positive impact on the growth
of TLP in the initial quarters before declining after Notwithstanding the gains the BSP has made
five quarters. This could mean that TLP growth in instituting Basel reforms, the BSP continues
remained stable despite fluctuations in business to endeavor in the strengthening of risk
cycles and interest rates. Modifying further governance in the financial system. Forthcoming
the model to include CAR gap11 and using real regulatory reforms such as Credit Concentration
variables, the results show that growth in real Risk Management, Risk-based Pricing, Model
NPL was reined in by better compliance with Risk Management, and the ICAAP/Supervisory
capital requirements. This finding underscores Review Process are expected to foster prudent
banks’ commitment to managing risks and lending. Moreover, the recently launched BSOS
ensuring that risk-taking activities are met with serves as a complementary tool in validating
commensurate capital. the risk assessments of banking supervisors, as
well as act as a proactive and forward-looking
Meanwhile, the effects of monetary policy measure.
decisions are likewise simulated using the
model. A one-off 25-basis point12 increase in References:
the monetary policy rate is deemed to have an
Albert, J. and T. Ng (2012). “Assessing the
9 These include banks margin on loans, size of credit lines, collateral
requirements, loan covenants, maturity, and use of interest rate Resilience of ASEAN Banking Systems: The Case
floors. of the Philippines.” ADB Working Paper Series
10 BSP Senior Loan Officers Survey (June 2018). on Regional Economic Integration No. 93. Asian
11 Excess CAR over the minimum 10 percent. See Layaoen and Development Bank.
Domantay-Mailig (2018) for a thorough discussion on the
rationale for banks holding excess capital.
12 Simultaneous shocks of 1 percentage point to inflation and 5
basis points to the lending rate while holding other variables
constant were employed.

First Semester 2018
Chavan, P. and L. Gambacorta (2016). “Bank

Lending and Loan Quality: the Case of India.” BIS
Working Papers No. 595. Bank for International
Settlements.
Jimenez, G., and J. Saurina (2006). “Credit

Cycles, Credit Risk and Prudential Regulations”,
International Journal of Central Banking, June.
Joh, S.and S. Jong (2017). “Lending Behavior of

Prudent Banks around the 2007 Financial Crisis,”
Paper Presentation at the Korea Economics
Association Conference, www.korfin.org
Keeton, W. R. (1999). “Does Faster Loan Growth

Lead to Higher Loan Losses?” Federal Reserve
Bank of Kansas City Economic Review, Second
Quarter 1999, pp. 57-75.
Layaoen, C. and Domantay-Mailig, V. (2018). “Do

Basel III Influence Banks Holding of ‘Above the
Regulatory Minimum’ Capital?”, Status Report on
the Philippine Financial System, Second Semester
2017. Bangko Sentral ng Pilipinas.
Salas, V. and J. Saurina (2002). “Credit Risk in

Two Institutional Regimes: Spanish Commercial
and Savings Banks”, Journal of Financial Services
Research, 22(3), December.

Technical Appendix
Figure 1. Response of Growth in Nominal Non-Performing Loans to One Standard

Deviation Shocks
Response to Cholesky One S.D. Innovations ± 2 S.E.

Response of DLOG(NPL) to DLOG(RGDP) Response of DLOG(NPL) to D(INFLATION) Response of DLOG(NPL) to D(RRP_RATE)
.5 .5 .5
.4 .4 .4
.3 .3 .3
.2 .2 .2
.1 .1 .1
.0 .0 .0
-.1 -.1 -.1
-.2 -.2 -.2

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Response of DLOG(NPL) to LENDRATE Response of DLOG(NPL) to LOG(DEPOSIT) Response of DLOG(NPL) to CAR

.5 .5 .5
.4 .4 .4
.3 .3 .3
.2 .2 .2
.1 .1 .1
.0 .0 .0
-.1 -.1 -.1
-.2 -.2 -.2

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Response of DLOG(NPL) to LOG(TLP) Response of DLOG(NPL) to DLOG(NPL)

.5 .5
.4 .4
.3 .3
.2 .2
.1 .1
.0 .0
-.1 -.1
-.2 -.2
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Source: OSPD Estimates as of 28 September 2018

First Semester 2018
Figure 2. Response of Growth in Nominal Total Loan Portfolio to One Standard Deviation
Shocks

Response of LOG(TLP) to DLOG(RGDP) Res pons e of LOG(TLP) to D(INFLATION) Response of LOG(TLP) to D(RRP_RATE)
.6 .6 .6
.4 .4 .4
.2 .2 .2
.0 .0 .0
-.2 -.2 -.2
-.4 -.4 -.4

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Res pons e of LOG(TLP) to LENDRATE Res ponse of LOG(TLP) to LOG(DEPOSIT) Response of LOG(TLP) to CAR
.6 .6 .6
.4 .4 .4
.2 .2 .2
.0 .0 .0
-.2 -.2 -.2
-.4 -.4 -.4

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Res pons e of LOG(TLP) to LOG(TLP) Response of LOG(TLP) to DLOG(NPL)

.6 .6
.4 .4
.2 .2
.0 .0
-.2 -.2
-.4 -.4
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Figure 3. Response of Growth in Real Non-Performing Loans to One Standard Deviation
Shocks (CAR Gap Scenario)
Response of LOG(REALNPL) to DLOG(RGDP) Response of LOG(REALNPL) to D(REALPOLICY) Respons e of LOG(REALNPL) to D(REALLENDRATE)
1.2 1.2 1.2
0.8 0.8 0.8
0.4 0.4 0.4
0.0 0.0 0.0
-0.4 -0.4 -0.4

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Res pons e of LOG(REALNPL) to LOG(REALDEPOSITS) Response of LOG(REALNPL) to CARGAP Respons e of LOG(REALNPL) to LOG(REALTLP)
1.2 1.2 1.2
0.8 0.8 0.8
0.4 0.4 0.4
0.0 0.0 0.0
-0.4 -0.4 -0.4

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Response of LOG(REALNPL) to LOG(REALNPL)

1.2
0.8
0.4
0.0
-0.4
1 2 3 4 5 6 7 8 9 10

First Semester 2018
Foreign Currency Deposit Unit (FCDU) System

Overview
The FCDU system grew alongside the robust Figure 31. Top 5 FCDU Banks’ Assets
domestic economy. Liquidity was strong in view For End-Periods Indicated
of the significant investments in financial assets In Billion USD

50.0
Chart Title
that help ensure the withdrawability of foreign

currency deposits in the system. Profitability was 40.0
21.4
21.8 23.3
influenced by global market conditions, primarily 30.0 17.9
19.8
on policy actions by advanced economies affecting 20.0 15.7 16.9 16.9 16.5
global interest rates. Nonetheless, core earnings 24.6 26.5 26.3

have been steadily growing and relatively stable. 10.0 19.6 22.0
14.0 14.3 15.7 17.1
0.0
FCDU network remains intact Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18
Top 5 FCDU Banks' Assets Other FCDUs' Assets
The network of 78 FCDUs operating in the second Source: Supervisory Data Center
half of 2017 remained intact as of end-June 2018.
Out of which, 43 U/KBs each have an expanded As of end-June 2018, 56.9 percent of FCDU assets
FCDU (EFCDU) authority, while 24 TBs and 11 were placed in bank deposits and liquid financial
RCBs each have a basic FCDU license. assets. From end-June 2008 to end-June 2018,
the proportion of financial assets to total FCDU
FCDU resources sustain steady expansion, assets averaged 48.6 percent and stood at 50.2
funded by liquid financial assets percent at the end of the period. Loans were the
second biggest deployment of FCDU assets with
As of end-June 2018, total assets of the FCDU an average of 38.2 percent of assets during the
system reached USD 49.5 billion or P2.5 trillion1 same period (Figure 32).
(Figure 30). The FCDU assets represented 15.9
percent of the total resources of the banking Figure 32. FCDU Assets
For End-Periods Indicated
system as of end-June 2018. The end-June 2018 In Billion USD Chart Title
total FCDU assets was 2.5 percent higher than 50.0 0.8
end-June 2017 level.
40.0
Figure 30. Total FCDU Assets 20.2
Chart Title 30.0

In Billion USD
49.5
50.0
20.0
40.0 24.9
10.0
30.0
20.0 3.3
0.0
Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18
10.0
Cash Due from Banks Financial Assets Loans Other Assets
- Source: Supervisory Data Center

Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: Supervisory Data Center
FCDUs rebalance their investment portfolio to

The FCDU assets were spread across 78 banks, mitigate market risk
with 43 U/KBs contributing 97.5 percent to the
total as of end-June 2018. Meanwhile, the top The FCDUs rebalanced their portfolio investments
five FCDUs captured 53.0 percent of the system’s to longer-tenored financial assets HTM to mitigate
FCDU resources as of end-June 2018 (Figure 31). potential market risk from rising interest rates.
Almost half of FCDUs’ investments in financial

1 Closing rate of PHP50.466/USD (as of 30 June 2018). assets have been in securities issued by the

National Government, which accounted for 48.2 sectors. As of end-June 2018, Transport and
percent of the total as of end-June 2018. Investment Storage, Information and Communication, and
in securities issued by non-residents has been Mining and Quarrying sectors were among the top
a significant part of FCDUs’ investment portfolio recipients of FCDU loans.2 Loans to non-residents3
and stood at 45.1 percent of FCDUs’ portfolio (average of 25.9 percent) were also a stable and
investments as of end-June 2018 (Figure 33). growing share of the FCDU system’s total loan
portfolio (Figure 35).
Figure 33. Issuers of FCDU Investments
Figure 35. Industry Recipients of FCDU Loans
In Billion USD Chart Title For End-Periods Indicated
In Billion USD
28.0
17.5
24.0
Electricity
20.0 15.0
11.3 Manufacturing
16.0 12.5
Financials
12.0 1.7
10.0 Transportation
8.0
7.5 Information
12.1
4.0
5.0 Mining
0.0
Non-Residents
Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 2.5
Others
Government Corporates Non-Residents 0.0
Jun 14 Jun 15 Jun 16 Jun 17 Jun 18
Source: Supervisory Data Center Source: Supervisory Data Center
Banks continued to shift their holdings from

trading to non-trading securities in anticipation In terms of maturity profile, 47.5 percent of FCDU
of rising interest rates. Securities booked under loans have long-term maturities as of end-June
the HTM account, which have been on an uptrend 2018 while 28.1 percent have short-term maturities.
since 2013, have exceeded the AFS securities in Medium-term loans comprised 24.4 percent of
2016. The rebalancing of the investment portfolio FCDU loans.
mitigated the impact of MTM losses resulting from
changes in interest rates. The FCDU holdings of Net FCDU loans of USD 20.0 billion (PHP 1.0 trillion)
HTM securities made up 62.1 percent of FCDUs’ represented 11.1 percent of the banking system’s
financial assets at end-June 2018 while AFS was net loan portfolio of PHP 9.1 trillion as of end-June
reduced to 31.2 percent of the portfolio as of the 2018.
same cut-off date (Figure 34).
The expansion of the FCDU loan portfolio was
Figure 34. Distribution of Financial Assets
accompanied by the continued decline in the ratio
In Billion USD Chart Title
of FCDU’s NPL to total FCDU loans at 0.1 percent
28.0 compared to the banking system’s NPL ratio4 of 0.7
24.0 1.5 percent at end-June 2018. This contributed to the
0.2
20.0
high FCDU NPL coverage ratio (average at almost
16.0 15.6
five times of NPL for the period end-June 2008 to
12.0
end-June 2018) for soured FCDU credit. Similarly,
8.0
the ratio of FCDUs’ NPA to total assets declined
4.0 7.8
to 0.1 at end-June 2018 while the coverage of
0.0
provision for impaired assets almost mirrored that
Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 of the NPL coverage ratio (Figure 36).
AFS HTM UDSCL HFT FADFVPL

The credit provisioning process of the banking
system including FCDUs, is expected to be further
strengthened by the adoption of the Philippine
FCDU loans went mainly to manufacturing, Financial Reporting Standards 9. The new reporting
electricity and financial/insurance sectors framework provides guidelines on the shift in credit
By economic activity, the biggest recipients of 2 Memorandum to All Banks No. M-2014-009 dated 7 March 2014
FCDU loans from end-June 2014 to end-June 2018 required banks to adopt the 2009 Philippine Standard Industrial
were the Manufacturing (average of 21.1 percent), Classification (PSIC) for purposes of reporting the type of business/
Electricity, Gas, Steam and Air-Conditioning industry classification of resident counterparties to bank loans.
Supply (average of 18.9 percent) and Financial 3 Loans to non-residents: a memorandum item lodged under “Others”
and Insurance Activities (average of 11.6 percent) in the financial reporting package (FRP).
4 Net NPL to TLP.

First Semester 2018
provisioning perspective from the Incurred Loss Moving forward, the FCDU resources are expected
approach to the Expected Credit Loss approach. It is to gain significant traction following the easing
designed to promptly recognize credit losses even of foreign exchange rules, rising inflow of foreign
before evidence of impairment manifests. direct investments, capital market reforms, and the
entry of foreign banks.
Figure 36. FCDU Asset Quality Ratios
For End-Periods Indicated FCDUs maintain adequate asset cover for
% Chart Title % their liabilities
2.5 1200
2.0
1000 The banking system’s FCDU liabilities are subject to
800
100 percent asset cover, pursuant to the provisions
1.5 of the FCDU Law. Banks are generally compliant
with the said requirement as of end-June 2018.
600
1.0
400
0.5
200 It may be noted that the 30 percent liquid asset
0.0 0 cover and same currency cover requirements were
Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18
repealed following the formal adoption of the
NPL Coverage (RHS) NPA Coverage (RHS) NPL (LHS) NPA (LHS) liquidity coverage ratio (LCR) in January 2018. The
Source: Supervisory Data Center LCR data are expected to provide regulators and the
banks a better gauge of the liquidity standing of
Steady growth of resident deposits boosts covered institutions. These requirements will also
FCDU funding be removed for smaller banks starting January 2019.
Averaging at 80.0 percent of total funding sources FCDUs sustain profitable operations amid
from end-June 2008 to end-June 2018, deposits market volatility
placed by residents continued to drive the country’s Figure 38. FCDU Income Accounts
FCDU system (Figure 37). By end-June 2018, deposits For End-Periods Indicated
captured 76.6 percent of funding to the FCDU In Billion USD Chart Title
system and slightly increased YoY by 1.9 percent 1.6
from its level in end-June 2017. Steady inflows 1.4

1.2
from overseas Filipinos’ remittances and business 1.0
process outsourcing receipts buoyed the growth of 0.8

0.6
FCDU deposits. Total FCDU deposits stood at USD
0.1
0.4 0.4
37.9 billion or P1.9 trillion as of end-June 2018. 0.2

0.0
0.4
-0.2 Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18
Figure 37. FCDU Funding Sources
Net Interest Income FX Gains (Losses) Gains (Losses) from NFTA
In Billion USD Chart Title
Trading Gains (Losses) Other Income Net Income
50.0 0.3
2.1
9.3
40.0
30.0
Overall, FCDUs registered a positive bottom-line
20.0 37.9 with net profit of USD 431.7 million for the period
10.0
ended 30 June 2018, or a robust 12.1 percent increase
from the period ended June 2017 net profit (Figure
0.0
Jun 08 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 38). Profitability has been significantly influenced
Deposits Borrowings Other Liabilities Capital Accounts
by the sensitivity to global interest rate movements,
wherein the FCDU portfolio has significant impact
on the system’s holdings of financial assets. This is
evident in the movements in the second biggest
Borrowings provided another significant funding income component – the Gains (Losses) from Non-
source for FCDUs. As of end-June 2018, borrowings Trading Financial Assets (NTFA). The account posted
occupied about 18.7 percent of total FCDU funding, a standard deviation (SD) that was 83.3 percent
a moderate increase of 6.3 percent from its level in divergence from the average NTFA from end-June
end-June 2017, driven by the doubling of bonds 2008 to end-June 2018. In contrast, core earnings
payable (net). from Net Interest Income (NII) were relatively stable,
with an SD that was only 35.8 percent away from
the average NII during the period.

Figure 39. Profitability Trends
% Chart Title %
4.0 18.0
3.3 16.0
14.4
2.6 14.0
2.3
1.9 1.6 12.0
1.2 10.0
0.5 8.0
Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18
Cost-to-Income Ratio (RHS) ROA (LHS) NIM (LHS)
In particular, the FCDUs’ annualized ROA averaged

2.0 percent from end-June 2009 to end-June 2018.
By end-June 2018, the FCDUs’ annualized ROA
was at 2.3 percent, higher than the 1.2 percent
annualized ROA of the banking system (Figure 39).
The relatively low global interest environment

squeezed FCDU’s Net Interest margin (NIM) starting
2011, and was at 1.6 percent at end-June 2018. This
was significantly below the banking system’s NIM of
3.4 percent. On the other hand, FCDUs’ annualized
CTI ratio went down as growth of FCDU income
outpaced the expenses.

First Semester 2018
Trust Operations
Figure 40
Trust Assets by Financial Institution
NBFI NBFI
26.1% 23.7%
UB
June 2018 TB UB
61.4% June 2017
TB 1.4% 63.8%
P3,243.6 billion P3,127.2 billion
1.3%
KB
KB
11.1%
11.2%
Overview
The Philippine trust industry continued its growth Assets grow despite the restriction of access
track as total resources grew by 3.7 percent YoY to BSP deposit facilities
to P3,243.6 billion as of end-June 2018. There was
no significant change in the asset mix by type of Total assets of the trust industry reached P3,243.6
financial institution. The growth in the industry’s billion, 3.7 percent higher than the level recorded
total assets was primarily driven by the expansion in 2017 (Figure 41). The YoY increase in trust
in financial assets. This reflected the flexibility of assets was mainly driven by the establishment
trust entities in finding other financing outlets of a trust corporation with the recorded assets
despite the restricted access to the BSP deposit of P116.4 billion as of end-June 2018.2 The
facilities.1 Profitability posted a marginal YoY rise industry’s asset was equivalent to 20.7 percent of
of 2.5 percent, driven by improved income of the total assets of the Philippine banking system
trust entities. as of end-June 2018.
Trust entities with active operations decline In November 2016, the BSP discontinued the
access of trust entities to the BSP deposit
There were 37 FIs with trust license as of end- facilities, particularly the Overnight Deposit
June 2018. However, only 34 FIs had active trust Facility (ODF) and Term Deposit Facility (TDF).
operations comprised of 14 UBs, seven KBs, TBs, These entities were allowed to wind down all
and six NBFIs composed of three investment investments placed at the BSP until 30 June 2017.
houses and three trust corporations. Trust The regulation underscored the view that the
departments of 14 UBs accounted for the bulk of BSP deposit facilities serve as monetary policy
the total trust assets at 61.4 percent or P1,990.3 instruments for managing domestic liquidity and
billion (Figure 40). This was followed by six NBFIs were not intended to become investment outlets
that held 26.1 percent (P846 billion) of the total by banks and trust entities.
trust assets. Seven KBs and seven TBs accounted
for 11.2 percent (P362.4 billion) and 1.3 percent The restriction of access to the BSP deposit
(P44.9 billion) shares of the total trust assets, facilities led to the change in the composition of
respectively. the industry assets. This reflected the flexibility
2 Manulife and Trust Corporation started operation last 14

September 2017 as stated in Circular Letter No. CL-2017-061
1 Memorandum No. M-2013-021 dated 17 May 2013. dated 27 September 2017.

Figure 41
Composition of Trust Assets
Cash and
Other Other Due from

Equity Equity BSP
assets assets
Investments Investments 8.9% 0.1%
(net) 8.8% (net) 2.5%
2.4% Loans, net
Loans, net Deposits in Deposits in
Banks 2.6% Banks
2.6%
27.6% 29.0%
June 2018 June 2017

P3,243.6 billion P3,127.2 billion
Financial Financial
Assets, net Assets, net
58.6% 56.9%
Note: Cash and Due from BSP accounted for less than 0.05 percent of the industry's assets as of end-June 2018.
of trust entities in finding investment outlets Investments in securities still high

while simultaneously reducing their Cash and
Due accounts. As of end-June 2018, about As of end-June 2018, a large portion of trust
58.6 percent of the trust assets were invested in assets were invested in debt and equity securities.
financial assets amounting to P1,900.9 billion. Most of these investments were booked as
Meanwhile, Cash and Due from BSP declined by financial assets HFT and AFS. Investments in
37.8 percent to P1.3 billion as of end-June 2018 equity securities remained high which grew by
from last year’s P2.0 billion. 7.8 percent (P68.9 billion) to P946.6 billion at
end-June 2018 (Figure 43). This indicates greater
Figure 42 preference of trust entities for higher yielding
Asset Mix by Financial Institution
As of End-Periods Indicated financial instruments.
In Billion Pesos
120.0%
Figure 43
Investments in Debt and Equity Securities
100.0% As of End-Periods Indicated
In Billion Pesos
80.0%
1000.0 946.6
60.0% 900.0 877.8

51.3% 50.1%
70.6% 63.5% 78.2% 78.0%
784.8
800.0
40.0% 715.0
700.0
20.0% 611.9
32.4% 33.6% 587.4
23.8%
600.0
19.2% 14.8% 14.9% 517.2
0.0% 500.0 460.9 462.6
443.8
Jun-18 Jun-17 Jun-18 Jun-17 Jun-18 Jun-17 437.3 432.9
414.1
Universal and Commercial Banks Thrift Banks NBFIs 400.0 373.0 369.7
Cash and Due from BSP Deposits in Banks Financial Assets, net Loans, net Equity Investments (net) ROPA (net) Other assets 300.0
200.0
100.0
There was no significant change in the asset mix 0.0
by type of FI as of end-June 2018. Financial assets Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
still held the largest share followed by deposits Investment in government securities Investment in other debt securities Investment in equity securities
in banks (Figure 42). The 6.9 percent (P122.6

billion) YoY increase in financial assets was mainly

due to the 14.5 percent (P83.7 billion) growth of Asset quality metrics slightly improve on
NBFIs investments in financial assets. Moreover, enhanced credit risk management
deposits in banks of trust entities declined by 1.5
percent YoY as U/KBs deposit fell by P26.2 billion Asset quality was sustained as the NPL ratio
to P761.3 billion as of end-June 2018 from year marginally improved by 0.3 percentage point
ago’s P787.5 billion. to 1.7 percent. Gross loans increased by P2.7
billion but NPLs declined by P0.2 billion resulting

First Semester 2018
to a lower NPL ratio as of end-June 2018. The fall under this category held 48.6 percent (P702.2
NPL coverage ratio remained high at 178.1 billion) of the total trust accounts, followed by
percent. Nonetheless, the NPL of trust entities employee benefit and personal trust with 24.2
poses manageable risk given that the industry’s percent and 16.0 percent shares, respectively.
loan portfolio represents only 2.7 percent of the
industry’s total assets. Figure 44
Composition of Trust Accountabilities
Meanwhile, the trust industry remained liquid

In Billion Pesos
3,500
3,243.6
as ratio of liquid assets-to-total accountabilities

3,127.2
3,000 2,831.7 469.8
stood at 58.5 percent as of end-June 2018, higher 2,500

2,576.3 2,572.1
by 4.6 percentage points from the previous year’s 2,000

1,328.8
54.0 percent.
1,500
Agency accounts drive expansion in 1,000
1,444.6
trust accountabilities 500
Trust accountabilities continued to expand, Jun-14 Jun-15

Trust Agency
Jun-16 Jun-17
Other Fiduciary Services
Jun-18
registering a 3.7 percent YoY growth to reach Source of data: Supervisory Data Center
P3,243.6 billion as of end-June 2018 (Figure 44).

The YoY expansion in trust accountabilities was UITFs level fell following the drop in money
mainly driven by the 36.2 percent YoY increase market funds
in agency accounts3 which stood at P1,328.8
billion as of end-June 2018. Moreover, the 5.8 Overall, UITFs declined by 13.8 percent to P714.0
percent increase in other fiduciary services billion as of end-June 2018 from P828.0 billion
also contributed to the expansion of total a year ago mainly due to the reduction in UKBs
accountabilities. UITFs by 19.3 percent or P119.3 billion (Figure 45).
On the other hand, UITFs of NBFIs increased by
In particular, the increase in agency accounts was 3.0 percent (P6.1 billion) which can be attributed
led by the growth in individual agency accounts to the growth in UITFs of one trust corporation by
and institutional agency accounts by 76.7 percent 96.9 percent.
and 20.3 percent, respectively. Moreover, the Figure 45
increase in other fiduciary services was mainly Level of UITF, by Financial Institution
driven by the YoY growth in corporate fiduciary
In Billion Pesos
trust and escrow accounts4. 900

828.0
800 773.4
714.0
Trust accounts5 accounted for the largest share

700
638.8
610.8
600
to total accountabilities at 44.5 percent (P1,444.6 500
billion). Unit investment trust funds (UITFs), which 400
300
200
3 These are accounts wherein the trust institution (agent) binds 100
itself to render asset management services in representation or 0
on behalf of the client (principal) with the consent or authority

Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
Universal and Commercial Banks Thrift Banks Non-Bank Financial Institutions

of the latter. The trust institution, as agent, does not hold legal Source of data: Supervisory Data Center
title to the asset as it remains with the principal. These accounts

are comprised of wealth/asset/fund management services to the
There are several types of UITFs that are now
client where the trust institution exercises either discretionary or
available in the market which include, among
non-discretionary investment authority under an agency contract.
4 Escrow refers to agency agreements, where the trust institution
others, feeder funds, multi-class UITFs and UITFs
holds money, securities or properties deposited by the principal, with unit-playing feature which allows for a non-
the eventual delivery of which to a third party shall be contingent guaranteed stream of income to its participants.
upon the happening of a certain event or upon the action taken by Among these various types of UITFs available in
the principal or third party, or both. the market, the Money Market Funds remained
5 These refer to the accounts wherein legal title to funds and/ as investors’ top choice indicating the investors’
or properties of the trustor is transferred to the trustee (trust preference for holding short-term securities. The
institution), subject to an equitable obligation of the trustee to Money Market Funds which accounted for 68.8
administer, hold and manage such funds and/or properties for percent of the total UITFs fell by 19.7 percent YoY.
the use, benefit or advantage of the trustor or other designated Meanwhile, a huge portion of TBs UITFs are in the
beneficiaries. These are comprised of wealth/asset/fund form of Money Market Funds with 99.3 percent
management services to the client where the trust institution
share. “Others” include funds that are operating
exercises either discretionary or non-discretionary investment
authority.

as fund-of-funds6 and multi-class UITF. The share
of “Others” accounted for 25.3 percent of the
NBFIs UITFs (Figure 46)
Figure 47
Type of UITF, by Financial Institution
.
As of end-June 2018
100.0% 0.7%
13.6%
2.2% 25.3%
80.0% 4.8%
18.7%
60.0%
4.6%
99.3%
8.6%
40.0% 79.4%
20.0% 42.8%
0.0%
Universal and Commercial Banks Thrift Banks NBFIs
Money Market Fund Bond Fund Balanced Fund Equity Fund Others
Trust industry sustains a positive bottomline

amid increase in expenses
The trust industry remained profitable amid the

8.5 percent (P0.2 billion) increase in total expenses.
The net income of trust institutions grew by P0.1
billion to P2.8 billion for the period ended 30 June
2018. Fees and commissions which are the main
sources of income of the industry went up by P0.2
billion to P4.9 billion from P4.7 billion a year ago.
Meanwhile, total expenses grew as compensation/
fringe benefits and other expenses which
comprised 59.5 percent of the industry’s expenses
went up by P0.2 billion YoY. The industry’s profit
from fiduciary services is equivalent to 3.3 percent
of the total net income of the Philippine banking
system for the period ended 30 June 2018.
6 These are pooled funds that are invested in more than one collective
investment schemes.

The Non-Bank
Financial Institutions
40
Non-Bank Financial Institutions with
with Quasi-Banking Functions
Overview
As of end-June 2018, NBQBs1 continued to perform Loan expansion supports asset growth
well in their niche segments. Overall financial
condition remained satisfactory as the industry’s Total assets expanded by 9.8 percent to P260.6
total assets grew by 9.8 percent YoY, mostly billion as of end-June 2018 (Figure 48). Loans,
on account of higher loans funded by deposit which accounted for 68.5 percent of the total
substitutes and capital. Despite the perceived assets, rose further by 20.1 percent (from P143.5
uncertainties in the operating environment, billion end-June 2017 to P172.3 billion end-
NBQBs’ sustained profit accumulated to P3.9 June 2018) while net investments declined by
billion, albeit 11.0 percent lower than the recorded 13.5 percent from P46.8 billion to P40.5 billion.
gain for the same period in 2017. Nonetheless, This may be attributable to the confluence of
loan quality remained satisfactory as shown by heightened volatilities in domestic and emerging
improved asset quality indicators. The industry market economies.
also has sufficient capitalization to support overall
industry operations. Net interest earnings continue to surge amid
challenging operating environment
Overall operating network expands on new
financing company entrants The NBQBs posted an after tax profit of P3.9
billion, down from the P4.4 billion net profit last
There were nine operating NBQBs in the country year on the back of credit expansion. Losses in
consisting of three investment houses (IHs), five trading activities failed to dampen the sector’s
financing companies (FCs) and one other non- overall profitability. Sustained growth in net
bank with quasi-banking function as of end-June interest earnings from finance companies boosted
2018. The overall network of NBQBs increased to aggregate profit, substantially compensating
120 comprised of nine head offices and 111 other for income shortfalls in most revenue streams
offices, from 111 in the same period in 2017 due including trading revenue from government and
to the establishment of nine new offices of FCs. private securities, which together constitute 9.0
Meanwhile, seven NBQBs are either subsidiaries percent of non-interest income and less than 2.0
or affiliates of U/KBs. percent of overall operating income. Uncertainties
Figure 47
Non-Bank Financial Institutions with Quasi-Banking Functions (NBQBs)
Asset Mix
As of end-Period Indicated
Other Assets Other Assets

ROPA, net ROPA, net
4.5% 4.1%
0.2% Cash and Due from 0.2% Cash and Due from
Banks Banks
13.7% 15.2%
June 2018 Investments, net June 2017

15.5% Investments, net
P260.6 billion P237.4 billion 19.7%
Loans, net
66.1%
Loans, net
Source of Data: Supervisory Data Center 60.8%
1 The NBQBs are non-bank financial institutions (NBFIs) authorized by

BSP to borrow funds from 20 or more lenders for their own account
through issuances, endorsement or assignment with recourse or
acceptance of deposit substitutes for purposes of re-lending or
purchasing receivables and other obligations. NBQBs are subject to
BSP supervision.

First Semester 2018
emanating from fears of a faster-than-expected US Since the NBQBs’ aggregate gross assets grew at
policy normalization, rising inflation expectations, a slower rate compared to NPA, the NPA ratio as
prolonged global trade tension, contributed to of end-June 2018 was slightly higher compared to
market underperformance. the same period a year ago. From 2.6 percent in
end-June 2017, NPA ratio inched up to 2.9 percent
The FCs continued to dominate the industry. Over and the hike was accompanied by a corresponding
80 percent of the industry’s assets were accounted increase in the NPL ratio which rose slightly
for by financing companies amounting to P215.5 from 3.8 to 3.9 percent as of end-June 2018. To
billion (up by 19 percent from P180.4 billion for the adequately cover against credit losses, NBQBs
same period last year) while IHs which comprised increased their NPL coverage ratio to 96.6 percent.
17 percent of the aggregate industry assets, The industry also raised the NPA coverage ratio to
registered a declining asset base from P57 billion 89.7 percent from 63.3 percent a year ago.
in end-June 2017 to P45 billion end-June 2018,
following marked decline in the industry’s loan Figure 49
and investment portfolios. The boost in the other NPA and NPA Coverage Ratios As of end-Period Indicated
asset component, which grew by 51.4 percent (In Percent, LHS) (In Percent, RHS)
from last year failed to raise up overall growth of

100.0 3.5
90.0
the industry’s assets. Meanwhile, the sustained 80.0

3.0
expansion in the FCs’ resources were largely driven 70.0
by the steady increases in the loan portfolio which

2.5
60.0
constitutes a sizeable portion of its assets (80 50.0

NPA Coverage (LHS)
NPA Ratio (RHS) 2.0
percent). The resources of IHs were concentrated 40.0
to core business activities such as net investments 30.0

Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jun-17 Jun-18
1.5
and cash and bank receivables, valued at P36

billion and P5.4 billion, roughly equivalent to 80

percent and 12 percent of estimated total assets Deposit substitutes continue to propel asset
growth
as of end-June 2018, respectively.
Figure 48
NPL and NPL Coverage Ratios Bills payable continued to provide funding for
(In Percent, LHS) (In Percent, RHS)
NBQBs’ operations, despite the slight deceleration
100.0 7.0
from last year’s figure. The industry’s total liabilities
90.0 NPL Coverage (LHS)
NPL Ratio (RHS) 6.0 expanded by 9.0 percent (down from 23.1 percent)
80.0
to P210 billion mainly on account of the 12.8
70.0 5.0
percent increase in bills payable. Bills payable
60.0
4.0 consisted mostly of deposit substitutes with 65.9
50.0
percent share (down from 82.7 percent share as of
40.0
Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jun-17 Jun-18
3.0
end-June 2017) and other bills payable with 34.1
percent share (up from 17 percent share last year).
Figure 504
Non-Bank Financial Institutions with Quasi-Banking (NBQBs)
Funding Mix
Other Liabilities Other Liabilities

12.8% Capital Accounts 15.2% Capital Accounts
19.4% 18.8%
June 2018 June 2017

P260.6 billion P237.4 billion
Bills Payable Bills Payable

67.8% 66.0%

By sub-group, total bills payable of FCs and IH stood Figure 52
at P159.5 billion and P17.2 billion, respectively. FCs’ Cost-to-Income Ratio
assets were funded mostly by deposit substitutes In P Billion (LHS) In Percent (RHS)
with 65.2 percent share, up from 59.8 share last 30.0 43.0
year. 25.0
42.0
41.0
20.0
Capital picks up on sustained retained earnings 40.0
15.0 39.0
Figure 51 38.0
10.0
37.0
Comparative Net Profit
As of end-Period Indicated 5.0
36.0
In Php billions
0.0 35.0
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
18.0
Operating Income (LHS) Operating Expense (net of bad debts and provisions) (LHS) Cost-to-Income ratio (RHS)
16.0
14.0
12.0
10.0
8.0
6.0
4.0
1.3 0.4
2.0
3.1 3.5
-
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jun-17 Jun-18
FCs IHs
As of end-June 2018, the industry’s total capital

grew by 12.8 percent to P50.4 billion, driven mainly
by the P3.8 billion increase in retained earnings.
The equity of FCs in particular, rose by 26 percent
while that of the IHs marginally declined. As a result,
the total capital accounts-to-total assets ratio grew
to 19.4 percent from to 18.8 percent posted a year
ago.
NBQB industry remains profitable
The industry continued to be profitable with a net

profit of P3.9 billion, albeit 11 percent lower than the
previous year’s net profit. The modest improvement
in earnings performance was propelled primarily by
the increase in net interest income by 17 percent
year-on-year, resulting in higher annualized ROA
and annualized ROE of 3.6 percent and 18.8 percent,
respectively.
The industry’s annualized CTI ratio further declined

to 37.5 percent from 38.0 percent in end-June 2017,
as operating income outpaced operating expenses.
From a peak of 10.1 billion pesos in June 2013, the
industry was successful in its endeavor to keep its
operating expenses less than half of its operating
income.

First Semester 2018
Non-Stock Savings
and Loan Associations (NSSLAs)
Figure 53
Non-Stock Savings and Loan Associations (NSSLAs)
Asset Mix
Cash and Due
Other Assets from Banks Other Assets Cash and Due
3.7% 7.0% 4.3% from Banks
Investments, 12.0%
net
8.7%
Investments,
net
12.6%
June 2018 June 2017

P210.4 billion P173.4 billion
Loans, net Loans, net

80.6% 71.1%
Overview
The NSSLA1 industry maintained its growth Loans remain as main component of
momentum with the expansion of resources NSSLAs’ resources
mainly channeled to loans. The industry remained
well capitalized with the growth in members Total resources of the NSSLAs have been steadily
capital contribution and sustained profitability increasing in the last five years on account of
for the last five years. strong loan growth. The industry’s total assets
reached P210.4 billion as of end-June 2018,
NSSLA’s operating network slightly declines higher by 21.3 percent from P173.4 billion a
year ago (Figure 54). This was driven by the 37.5
There were 64 operating NSSLAs as of end- percent or P46.2 billion YoY increase in loans3.
June 2018, slightly lower compared to the 65
operating NSSLAs reported the same period in
Figure 54
2017. These accounted for 8.2 percent of the

Asset Growth
total 776 operating NBFIs under the supervision In Billion Pesos (LHS)
200.0
In Percent (RHS)
24.0
or regulation of the BSP. The slight reduction in 160.0

21.3 21.0
the number of operating NSSLAs was due to the

18.0
120.0 15.0
revocation of license to operate of one NSSLA2. 80.0

12.0
9.0
6.0
40.0
3.0
- 0.0
Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
Total Assets Growth Rate
1 The NSSLAs are non-stock, non-profit corporations engaged in

the business of accumulating members’ savings for lending to
As the industry continued to service the
households by providing long-term financing for home building
and/or development and for personal finance. financing needs of its members, loans remained
2 The license to operate of the Philippine Savings and Loan as a significant component of the industry’s
Association, Inc. as an NSSLA was cancelled per Circular Letter No.
CL-2018-031 dated 25 April 2018. 3 Refers to loans, net (exclusive of IBL).

total assets, with 80.6 percent share (Figure The NPA ratio, consisting of NPL and ROPA, also
53). Meanwhile, about 24.2 percent of NSSLAs’ marginally improved at 6.9 percent as of end-
resources were directed to liquid assets such as June 2018 from 7.1 percent as of end-June 2017.
cash and due from banks and investments which This suggests that despite the industry’s upbeat
stood at P14.7 billion and P18.3 billion, respectively. lending activities, credit underwriting standards
Other assets accounted for the remaining 3.7 were not compromised. Meanwhile, the NSSLA
percent (P7.9 billion) of the industry’s total assets. industry continued to increase its buffers against
potential credit losses as both the NPL and NPA
Loan and asset quality metrics improve coverage ratios were maintained above 100
percent. The NPL coverage ratio improved by 2.8
Figure 55 percentage points to 122.6 percent while the NPA
Asset Quality Ratios coverage ratio went up by 3.1 percentage points
In Percent (LHS)
to 122.2 percent as of end-June 2018.
In Percent (RHS)
130.0%
110.0%
13.0%
NSSLA capital remain as a major
11.0%
source of funding
90.0%
70.0%
Total liabilities of NSSLAs grew by 44.8 percent 9.0%
to P70.1 billion from year ago’s P48.4 billion,

driven by the 19.2 percent or P7.4 billion increase
50.0% 7.0%
30.0%
in member’s deposits which accounted for 65.7 5.0%
Jun-13 Jun-14
percent of total liabilities and the P13.8 billion
Jun-15 Jun-16 Jun-17 Jun-18
growth in bills payable. In particular, savings

NPL Coverage (LHS) NPA Coverage (LHS) NPL Ratio (RHS) NPA Ratio (RHS)
deposits which accounted for 86.5 percent of the

industry’s total deposits increased YoY by 25.8

The NPL ratio of NSSLAs dropped by 1.3 percent or P8.2 billion.
percentage points to 8.3 percent as of end-June
2018 from year ago’s 9.6 percent as the increase
in TLP surpassed the growth in NPLs (Figure 55).
Figure 56
Funding Mix
As of end-Periods Indicated
Capital Capital
Accounts Accounts
66.7% 72.1%
Other Other
Liabilities Liabilities
3.0% 3.4%
June 2018
Bills June 2017 Bills
P210.4 billion Payable P173.4 billion Payable
8.4% 2.2%
Deposit
Deposit
Liabilities
Liabilities
22.3%
21.9%

First Semester 2018
The industry’s capital continued as a major source Figure 58

of funding with 66.7 percent share as of end-June Return on Equity (ROE) and Return on Assets (ROE) Ratios
2018 (Figure 56). The total capital increased by 12.3
percent YoY as paid-in capital from members and In Percent
20.0
retained earnings grew by 11.2 percent and 17.1
percent, respectively. Liquid assets-to-deposits ratio 16.0
14.8
remained relatively high at 71.7 percent but lower 12.0
compared to 110.2 percent recorded as of end-June

10.2
8.0
2017. Meanwhile, the paid-in capital-to-total capital ROE ROA
4.0
accounts ratio slightly declined by 0.8 percentage
point to 80.6 percent as of end-June 2018 from 81.4 0.0
Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
percent a year ago as the growth in total capital Source of data: Supervisory Data Center
outpaced the increase in paid-in-capital.
Higher interest income earned from loans

boosts core earnings
Figure 57
Cost-to-Income Ratio
In P Billion (LHS) In Percent (RHS)

30.0 20.0
18.0
25.0
16.0
14.0
20.0
12.0
15.0 10.0
8.0
10.0
6.0
4.0
5.0
2.0
0.0 -
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
Operating Income (LHS) Operating Expense (net of bad debts and provisions) (LHS) Cost-to-Income ratio (RHS)
NSSLAs’ core earnings were driven largely by

interest income earned from lending activities. Net
profit rose to P10.1 billion from P7.9 billion in end-
June 2017, on account of 28.5 percent (P2.8 billion)
increase in interest income. Likewise, non-interest
income went up by 18.8 percent to P1.5 billion
from year ago’s P1.3 billion as fee-based income
rose by 13.5 percent or (P0.1 billion). Meanwhile,
the industry’s annualized CTI ratio improved to 17.1
percent (Figure 57), lower by 1.3 percentage points
from 18.4 percent a year ago. Likewise, the NSSLAs’
annualized ROA and annualized ROE also improved
to 10.2 percent and 14.8 percent as of end-June
2018 from year ago’s 9.2 percent and 12.6 percent,
respectively (Figure 58).

Summary
and
Policy Direction
First Semester 2018
Summary and Policy Direction

Philippine Financial System Sustains its Strong Performance
amid Lingering Global Financial Market Volatilities
The Philippine financial system maintained its BSP and other banks) expanded further at 16.7
growth trajectory in the first semester of 2018 on percent YoY. These loans were mostly allocated
the back of progressive implementation of financial to key production sectors such as the real estate,
sector reforms, sound governance and risk culture wholesale trade and repair of vehicle related,
as well as pursuit of financial innovation. While manufacturing, household, and utilities sectors.
there are lingering volatilities in the external
macroeconomic environment, the country’s Credit expansion was carried out with prudent
underlying fundamentals and continued investor credit underwriting standards as there was
confidence supported the steady growth of the no evidence of deterioration in the overall
domestic financial sector. asset quality of the loan portfolio. Both the
NPL and NPA ratios settled at 1.8 percent and
The upbeat activities in the financial system 1.9 percent, respectively, as of end-June 2018
supported the services sector of the domestic while NPL/NPA coverage ratios were recorded at
economy as it remains steady in the first half of 114.4 percent and 80.9 percent, respectively. The
2018. Real GDP grew YoY by 6.3 percent in the first analysis of the asset quality component of the FSI
semester of 2018. On the production side, services of the banking system and a technical study on
and industry sectors helped lift real GDP growth. the relationship between higher bank lending and
Meanwhile, the services sector was supported quality of loans (Box Article 2) both showed that
by increased transactions in banking institutions Philippine banks continued to be risk-sensitive
and non-bank financial intermediation. On the in their lending behavior as the quality of loans
expenditure side, resilient household spending, remained stable amid shocks to the macroeconomic
strong growth in capital formation and government environment and sustained credit growth.
spending provided significant boost to real GDP
growth. Moreover, the results of the REST and more granular
analyses of the real estate exposures of banks
The banking system continued to account for similarly revealed that credit exposures to the real
about 82 percent of the total financial system’s estate and household sectors are manageable,
total resources as of end-June 2018. The banking driven by real demand, and need not warrant
system’s total assets expanded by 10.3 percent supervisory intervention amid low risk of sharp
from the previous year’s level. Banks’ prudent correction in local property prices over the medium
risk-taking behavior, sound corporate and risk term.
management standards, investment in enabling and
transformative financial innovation, and continuing The high level of retail and peso deposits
commitment to pursue meaningful financial sector of residents provided stable support for
reforms all contributed to the steady growth and system-wide funding. As of end-June 2018, total
stability of the domestic financial system. deposit liabilities accounted for 77.4 percent of
total assets. Funding for loans was sourced from
Total resources were channeled mostly to loans stable deposit liabilities which comprise 1.3 times
(58.3 percent) and investments (22.1 percent). of the gross TLP.
Banks’ preference for interest-based revenues
and longer-tenured instruments were intended to Meanwhile, a technical analysis (Box Article 1) on the
rebalance portfolios, to ride out potential MTM determinants of the movements of deposit interest
losses given higher interest rates, to hedge foreign rates revealed that greater access to banking
exchange risks and to sustain a positive bottom facilities, movement in the ORRP rate, higher
line. Accordingly, core lending (TLP, net of interbank wage, better economic and weather conditions
loans and reverse repurchase agreements with the are significant drivers of the behavior of median

deposit rate. Moreover, total capital accounts also With the evolving trends and practices as well as
posted a double-digit growth of 14.6 percent to changing preferences in financial services delivery,
reach P1.9 trillion by end-June 2018. the BSP aims to be dynamic in order to be at pace
with these changes. Results of the BSOS for the
On the whole, banks’ risk-taking activities had first semester of 2018 showed that respondent
manageable impact on capital and profitability. The banks are focused on developing new and
CAR at 15.3 percent, on a solo basis, of the banking technology-enabled service capacities, expanding
system indicates strong capital buffer against market reach and leveraging of client relationships.
unforeseen shocks from risk-taking activities. In this regard, the BSP will continue to craft
meaningful and proactive reforms that are aligned
The trust industry continued its growth trajectory as with best practices and international standards,
total resources grew by 3.7 percent YoY to P3,243.6 at the same time sensitive to local conditions.
billion. Growth in financial assets supported the Some of these reforms include the adoption of
industry asset expansion. Broadly, this reflects the the Surveillance Loop and Early Intervention
flexibility of trust entities in finding other financing Framework which involves the development of a
outlets despite the restricted access to the BSP banking sector resilience index and a vulnerability
deposit facilities. index. All these initiatives are meant to help banks
brace for potential vulnerabilities moving forward.
Other non-bank financial institutions similarly
exhibited prudence in their overall risk-taking
activities and provided sufficient buffers
for unforeseen shocks from their operating
environment. Thus, the overall performance of the
industry resulted in stronger balance sheets and
net profit coupled with improving asset quality and
continued solvency.
Overall, the Philippine financial system’s sustained

positive performance has been grounded on
the BSP’s sustained implementation of proactive
reforms that will raise the bar on corporate
governance standards and risk management
systems, as well as promote sound liquidity and
capital position, and greater access to financial
services.
The findings in this Report have important

implications for microprudential policy
implementation in the BSP. The BSP remains
committed in the pursuit of sharpening its
analytical tools and models to help examine any
incipient risks to banking stability and significant
financial sector reforms amid the changing market
conditions and increasing sophistication of global
financial services and rapid digital transformation.
A number of regulatory developments have been
undertaken by the BSP to strengthen corporate
governance and risk management standards,
including the adoption of Basel reforms, promotion
of the integrity and transparency of the financial
system, and advancement the financial inclusion
agenda.

Appendices
Appendix
Appendices
The Philippine Banking System Physical Composition
Appendix 1: Financial Highlights Appendix 25: Financial Institutions Under BSP
Appendix 2: Growth Rates Supevision/Regulation
Appendix 3: Selected Performance Indicators
Appendix 4: Regional Profile Comparative Balance Sheet
Appendix 5: Density Ratio Appendix 26: Philippine Banking System
Appendix 6: Automated Teller Machines (ATM)
Appendix 7: Number of Banks Authorized to
Engage in E-Banking Operations Comparative Income Statement
Appendix 8: Profitability Indicators Appendix 27: Philippine Banking System
Appendix 9: Asset Quality Indicators

Foreign Currency Deposit Unit (FCDU) Selected Performance Indicators
Appendix 28: Philippine Banking System
System
Appendix 10: Financial Highlights
Appendix 11: Growth Rates Financial Soundness Indicator
Trust Operations Contingent Accounts

Appendix 13: Financial Highlights
Appendix 14: Growth Rates
Appendix 16: Balance Sheet Structure
Trust Operations Assets and
Non-Banks with Quasi-Banking Accountabilities
Functions (NBQBs) Appendix 31: Philippine Banks and Non-Bank
Appendix 17: Financial Highlights Financial Institutions (by Industry)
Appendix 18: Selected Performance Indicators Appendix 32: Philippine Banks and Non-Bank
Appendix 19: Profitability Indicators Financial Institutions (by Trust Type)
Appendix 20: Asset Quality Indicators Appendix 33: Income and Expenses (Banks and
NBFIs)

Non-Stock Savings and Loan
Comparative Statement of Condition
Associations (NSSLAs) Appendix 34: Non-Banks Financial Institutions
Appendix 21: Financial Highlights (NBFIs)
Appendix 23: Profitability Indicators Comparative Statement of Income
Appendix 24: Asset Quality Indicators
and Expenses
Appendix 35: Non-Bank Financial Institutions
(NBFIs)
Financial Supervision Sector

15 51 15
First Semester 2018
Appendix 1. Philippine Banking System: Financial Highlights
End-December End-June
Levels (P Billion) 2015 2016 2017 2017 * 2018 p/
Income Statement
Total Operating Income 479.7 535.0 590.8 273.6 317.3
Net Interest Income 349.1 386.0 447.4 209.0 238.5
Non-interest Income 130.5 149.1 143.4 64.7 78.7
Non-Interest Expenses 310.4 341.3 378.2 176.1 204.2
Losses/Recoveries on Financial Assets (22.1) (30.0) (33.7) (13.8) (15.6)
Bad Debts/Provisions for Credit Losses (29.3) (39.3) (38.3) (16.4) (18.8)
Recovery on Charged-Off Assets 7.2 9.2 4.5 2.6 3.2
Net Profit Before Share in the Profit/(Loss) of Unconsolidated Subsidiaries,
Associates and Joint Ventures 147.1 163.7 178.9 83.7 97.4
Share in the Profit/(Loss) of Unconsolidated Subsidiaries, Associates
and Joint Ventures 17.7 22.4 27.9 14.1 9.9
Total Profit/Loss Before Tax and Before Minority Interest 164.8 186.1 206.8 97.8 107.4
Income Tax Expense 29.5 31.7 38.7 16.6 21.4
Total Profit/Loss After Tax and Before Minority Interest 135.3 154.3 168.1 81.3 86.0
Minority Interest in Profit/(Loss) of Subsidiaries - - - - -
Net Profit/(Loss) 135.3 154.3 168.1 81.3 86.0
Balance Sheet
Total Assets 1/ 12,089.1 13,591.2 15,166.2 14,236.4 15,704.4
Cash and Due from Banks 2,473.1 2,765.7 2,713.5 2,753.9 2,407.9
Financial Assets, gross (Other than Loans) 2,496.5 2,595.3 2,914.5 2,813.3 3,237.1
Financial Assets Held for Trading (HFT) 193.3 168.3 177.5 218.9 202.4
Financial Assets Designated at Fair Value through Profit or Loss (DFVPL) 7.9 8.9 17.0 12.5 15.7
Available-for-Sale (AFS) Financial Assets 1,042.2 1,038.1 1,070.0 955.7 877.0
Held-to-Maturity (HTM) Financial Assets 1,144.4 1,254.0 1,542.4 1,517.5 2,078.4
Unquoted Debt Securities Classified as Loans (UDSCL) 89.2 106.4 88.3 88.9 61.0
Investments in Non-Marketable Equity Securities (INMES) 19.4 19.7 19.3 19.8 2.6
Accumulated Market Gains/(Losses) 2.5 (5.5) (9.8) 3.0 (13.7)
Allowance for Credit Losses 25.9 24.9 23.5 24.1 22.5
Financial Assets, net (Other than Loans) 2,473.2 2,564.9 2,881.2 2,792.3 3,200.8
Loans, gross (inclusive of IBL) 6,527.3 7,612.1 8,865.6 8,020.2 9,352.0
Interbank Loans Receivable (IBL) 214.6 266.5 252.0 229.8 280.2
Loans, gross (exclusive of IBL) 6,312.7 7,345.6 8,613.6 7,790.4 9,071.9
Reverse Repurchase (RRP) with BSP and Other Banks 343.9 377.5 365.8 345.7 345.4
Loans, gross (exclusive of IBL and RRP with BSP and Other Banks) 5,968.7 6,968.1 8,247.7 7,444.6 8,726.4
Allowance for Probable Losses 161.6 172.8 184.3 177.7 199.1
Loans, net (exclusive of IBL and RRP with BSP and Other Banks) 5,807.1 6,795.3 8,063.5 7,266.9 8,527.4
Equity Investment in Subsidiaries, Associates and Joint Ventures, net 223.9 239.5 253.9 247.9 278.1
ROPA, net 93.1 91.5 92.3 88.3 96.0
Other Assets, net 460.3 490.3 543.9 511.5 568.6
Total Liabilities 10,685.6 12,043.1 13,409.4 12,544.5 13,765.0
Financial Liabilities Held for Trading 28.2 36.1 32.5 29.7 44.5
Financial Liabilities DFVPL - - - - -
Deposits 9,231.3 10,506.6 11,727.0 11,013.1 12,149.4
Peso Liabilities 7,689.5 8,708.7 9,753.0 9,118.4 10,106.6
Foreign Currency 1,541.9 1,797.8 1,973.9 1,894.7 2,042.8
Bills Payable 629.4 703.9 787.2 720.7 661.0
Unsecured Subordinated Debt 113.8 89.7 87.0 84.4 86.9
Redeemable Preferred Shares 0.9 0.9 0.9 0.9 0.9
Other Liabilities 681.9 706.0 774.8 695.6 822.2
2/
Total Capital Accounts 1,403.6 1,548.1 1,756.8 1,691.9 1,939.4
1/ Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks
2/ Inclusive of the portion of the "Net Due to Head Office" which qualified as capital
* Data for R/CBs as of end-March 2017
p/ Preliminary; Data for R/CBs as of end-March 2018
Figures may not add up due to rounding-off
52 Office of Supervisory Policy Development

52
Appendix
Appendix 2. Philippine Banking System: Growth Rates
Growth Rates 2015 2016 2017 2017 * 2018 p/
Income Statement
Total Operating Income 2.7 % 11.5% 10.4% 6.8 % 15.9 %
Net Interest Income 8.6 % 10.5% 15.9% 14.0 % 14.1 %
Non-interest Income (10.4%) 14.2% (3.8%) (11.3%) 21.7 %
Non-Interest Expenses 6.0 % 10.0% 10.8% 8.8 % 16.0 %
Losses/Recoveries on Financial Assets (13.8%) 35.6% 12.3% 8.9 % 12.8 %
Bad Debts/Provisions for Credit Losses (0.4%) 34.0% (2.6%) 6.3 % 14.5 %
Recovery on Charged-Off Assets 92.7 % 28.8% (51.0%) (6.0%) 23.6 %
Net Profit Before Share in the Profit/(Loss) of Unconsolidated Subsidiaries,
Associates and Joint Ventures (0.9%) 11.3% 9.3% 2.5 % 16.4 %
Share in the Profit/(Loss) of Unconsolidated Subsidiaries, Associates
and Joint Ventures 7.1 % 26.3% 24.8% 22.9 % (29.6%)
Total Profit/Loss Before Tax and Before Minority Interest (0.1%) 12.9% 11.1% 5.0 % 9.8 %
Income Tax Expense 0.1 % 7.6% 21.9% 10.1 % 29.0 %
Total Profit/Loss After Tax and Before Minority Interest (0.2%) 14.0% 8.9% 4.0 % 5.8 %
Minority Interest in Profit/(Loss) of Subsidiaries
Net Profit/(Loss) (0.2%) 14.0% 8.9% 4.0 % 5.8 %
Balance Sheet
1/
Total Assets 8.2 % 12.4% 11.6% 13.5 % 10.3 %
Cash and Due from Banks (0.2%) 11.8% (1.9%) 6.5 % (12.6%)
Financial Assets, gross (Other than Loans) 9.8 % 4.0% 12.3% 11.4 % 15.1 %
Financial Assets Held for Trading (HFT) (40.0%) (12.9%) 5.5% (14.8%) (7.5%)
Financial Assets Designated at Fair Value through Profit or Loss (DFVPL) 45.5 % 11.9% 91.1% 26.3 % 25.1 %
Available-for-Sale (AFS) Financial Assets 5.1 % (0.4%) 3.1% 14.3 % (8.2%)
Held-to-Maturity (HTM) Financial Assets 38.1 % 9.6% 23.0% 15.4 % 37.0 %
Unquoted Debt Securities Classified as Loans (UDSCL) (15.4%) 19.2% (16.9%) 1.3 % (31.4%)
Investments in Non-Marketable Equity Securities (INMES) 1.2 % 1.5% (1.9%) 2.4 % (87.1%)
Accumulated Market Gains/(Losses) (86.4%) (319.6%) 78.6% (91.2%) (556.4%)
Allowance for Credit Losses 5.6 % (3.9%) (5.4%) (3.8%) (6.3%)
Financial Assets, net (Other than Loans) 9.1 % 3.7% 12.3% 10.2 % 14.6 %
Loans, gross (inclusive of IBL) 11.9 % 16.6% 16.5% 18.0 % 16.6 %
Interbank Loans Receivable (IBL) (12.9%) 24.2% (5.4%) 11.4 % 21.9 %
Loans, gross (exclusive of IBL) 13.0 % 16.4% 17.3% 18.2 % 16.4 %
Reverse Repurchase (RRP) with BSP and Other Banks 11.1 % 9.8% (3.1%) 7.1 % (0.1%)
Loans, gross (exclusive of IBL and RRP with BSP and Other Banks) 13.1 % 16.7% 18.4% 18.8 % 17.2 %
Allowance for Probable Losses 0.0 % 6.9% 6.6% 7.0 % 12.0 %
Loans, net (exclusive of IBL and RRP with BSP and Other Banks) 13.5 % 17.0% 18.7% 19.1 % 17.3 %
Equity Investment in Subsidiaries, Associates and Joint Ventures, net 11.2 % 6.9% 6.0% 6.4 % 12.2 %
ROPA, net (4.0%) (1.7%) 0.9% (3.9%) 8.7 %
Other Assets, net 1.3 % 6.5% 10.9% 9.2 % 11.2 %
Total Liabilities 9.0 % 12.7% 11.3% 13.8 % 9.7 %
Financial Liabilities Held for Trading (49.8%) 27.9% (9.9%) (17.4%) 50.1 %
Financial Liabilities DFVPL
Deposits 8.3 % 13.8% 11.6% 14.2 % 10.3 %
Peso Liabilities 8.4 % 13.3% 12.0% 14.0 % 10.3 %
Foreign Currency 7.5 % 16.6% 9.8% 15.0 % 7.8 %
Bills Payable 21.6 % 11.8% 11.8% 21.3 % (8.3%)
Unsecured Subordinated Debt 3.5 % (21.2%) (3.0%) (5.8%) 2.9 %
Redeemable Preferred Shares (5.3%) (2.5%) 2.7% 4.5 % (3.6%)
Other Liabilities 14.9 % 3.5% 9.7% 6.8 % 18.2 %
2/
Total Capital Accounts 2.7 % 10.3% 13.5% 11.1 % 14.6 %
1/ Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks
2/ Inclusive of the portion of the "Net Due to Head Office" which qualified as capital

35 53 35
First Semester 2018
Appendix 3. Philippine Banking System: Selected Performance Indicators
Selected Ratios 2015 2016 2017 2017 * 2018 p/
Profitability
1/
Earning Asset Yield 4.2 % 4.2 % 4.3 % 4.2 % 4.5 %
2/
Funding Cost 1.1 % 1.0 % 1.1 % 1.0 % 1.2 %
3/
Interest Spread 3.1 % 3.1 % 3.2 % 3.2 % 3.3 %
4/
Net Interest Margin 3.3 % 3.2 % 3.3 % 3.3 % 3.4 %
5/
Non-Interest Income to Total Operating Income 27.2 % 27.9 % 24.3 % 25.5 % 24.8 %
6/
Cost-to-Income 64.5 % 63.6 % 63.8 % 64.2 % 63.8 %
7/
Return on Assets (ROA) 1.2 % 1.2 % 1.2 % 1.2 % 1.2 %
7/
Return on Equity (ROE) 9.8 % 10.5 % 10.2 % 9.8 % 9.5 %
Liquidity
Cash and Due from Banks to Deposits 26.8 % 26.3 % 23.1 % 25.0 % 19.8 %
8/
Liquid Assets to Deposits 53.6 % 50.7 % 47.7 % 50.4 % 46.2 %
Loans, gross to Deposits 70.7 % 72.5 % 75.6 % 72.8 % 77.0 %
9/
Asset Quality
Restructured Loans to Total Loan Portfolio (TLP) 0.5 % 0.5 % 0.5 % 0.5 % 0.5 %
Allowance for Credit Losses (ACL) to TLP 2.5 % 2.3 % 2.1 % 2.2 % 2.1 %
Gross Non-Performing Loans (NPL) to TLP 2.1 % 1.9 % 1.7 % 1.9 % 1.9 %
Net NPL to TLP 0.6 % 0.6 % 0.6 % 0.7 % 0.9 %
NPL Ratio net of IBL 2.1 % 1.9 % 1.8 % 2.0 % 1.9 %
NPL Coverage (ACL to Gross NPL) 118.4 % 119.9 % 120.4 % 114.2 % 114.4 %
Non-Performing Assets (NPA) to Gross Assets 2.0 % 1.8 % 1.7 % 1.8 % 1.8 %
NPA Coverage (Allowance on NPA to NPA) 77.3 % 80.5 % 81.6 % 79.6 % 80.9 %
ROPA to Gross Assets Ratio 0.9 % 0.8 % 0.7 % 0.7 % 0.7 %
ROPA Coverage Ratio 27.6 % 29.1 % 26.9 % 29.2 % 27.0 %
Distressed Assets 4.0 % 3.5 % 3.2 % 3.4 % 3.2 %
Capital Adequacy
10/
Total Capital Accounts to Total Assets 11.6 % 11.4 % 11.6 % 11.9 % 12.4 %
11/ 12/
Capital Adequacy Ratio (Solo) 14.9 % 14.4 % 14.4 % 15.3 % 15.2 %
Common Equity Tier 1 (CET1) Ratio 12.4 % 12.5 % 12.6 % 13.4 % 13.5 %
Capital Conservation Buffer 6.4 % 6.5 % 6.6 % 7.4 % 7.5 %
Tier 1 Ratio 12.6 % 12.5 % 12.7 % 13.5 % 13.6 %
11/ 12/
Capital Adequacy Ratio (Consolidated) 15.8 % 15.1 % 15.0 % 16.0 % 15.8 %
Common Equity Tier 1 (CET1) Ratio 13.3 % 13.3 % 13.3 % 14.2 % 14.1 %
Capital Conservation Buffer 7.3 % 7.3 % 7.3 % 8.2 % 8.1 %
13/
Tier 1 Ratio 13.5 % 13.3 % 13.3 % 14.2 % 14.1 %
1/ Earning Asset Yield refers to the ratio of interest income to average earning assets.
2/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities.
3/ Interest Spread refers to the difference between earning asset yield and funding cost.
4/ Net Interest Margin refers to the ratio of net interest income to average earning assets.
5/ Non-Interest income includes dividends income.
6/ Cost-to-Income Ratio refers to the ratio of non-interest expenses to total operating income.
7/ ROA and ROE refer to the ratios of net profit to average assets and capital, respectively.
8/ Liquid Assets refer to Cash and Due from Banks plus Financial Assets, net of amortization (net of financial assets in equity securities).
9/ Ratios are computed in accordance with the NPL definition as prescribed under BSP Circular No. 772 dated 16 October 2012 effective 01 January 2013.
10/ Total capital accounts includes redeemable preferred shares.
11/ Refers to the ratio of qualifying capital to total risk-weighted assets. With the implementation of the reforms under the Basel III framework, the BSP issued
Circular No. 781 dated 13 January 2013 providing the new computation of qualifying capital under the Basel III standards. While the three major risks (credit, market
and operational risks) are still covered by the calculation of risk-based capital, the qualifying capital was strengthened through the eligibility criteria for recognition as
capital including the required loss absorbency features of capital instruments.
12/ CAR data are for Universal and Commercial Banks and subsidiary banks and quasi-banks; excludes Stand-Alone Thrift, Rural and Cooperative Banks


54
Appendix
Appendix 4. Philippine Banking Offices: Number of Offices and Regional Profile
UNIVERSAL COMMERCIAL COOPERATIVE

End-June 2018 Total THRIFT BANKS RURAL BANKS
BANKS BANKS BANKS
TOTAL 12,066 6,014 555 2,525 2,816 156

Head Offices 581 21 22 55 458 25
Branches/Other Offices 11,485 5,993 533 2,470 2,358 131
Regular Branch 9,558 5,716 522 1,898 1,319 103
Branch-Lite Unit 1,753 244 10 557 914 28
Microfinance-Oriented Branch 141 1 15 125
Representative Office 15 15
Remittance Desk Office 14 14
Marketing Office 2 2
Limited Purpose Branch 1 1
Sub-Branch 1 1
End-June 2017 End-June 2018
Branches/
Total Total Head Offices
Other Offices
TOTAL 11,392 12,066 581 11,485
Nationwide 11,343 12,018 581 11,437
National Capital Region (NCR) 3,565 3,701 81 3,620
Luzon 4,653 4,976 314 4,662

Region I - Ilocos 533 610 37 573
Region II - Cagayan Valley 370 398 31 367
Region III - Central Luzon 1,177 1,240 81 1,159
Region IV-A - CALABARZON 1,697 1,783 100 1,683
Region IV-B - MIMAROPA 271 285 23 262
Region V - Bicol 438 479 26 453
Cordillera Administrative Region (CAR) 167 181 16 165
Visayas 1,629 1,774 110 1,664

Region VI - Western Visayas 463 703 53 650
Region VII - Central Visayas 650 836 41 795
Region VIII - Eastern Visayas 214 235 16 219
NIR - Negros Island Region 1/ 302
Mindanao 1,496 1,567 76 1,491
Region IX - Zamboanga Peninsula 221 225 15 210
Region X - Northern Mindanao 380 402 27 375
Region XI - Davao Region 429 452 13 439
Region XII - SOCCSKSARGEN 2/ 237 256 11 245
ARMM 19 18 2 16
CARAGA 210 214 8 206
Overseas 49 48 0 48
Asia-Pacific 19 19 0 19
Europe 4 3 0 3
North America 5 5 0 5
Middle East 21 21 0 21
1/ Executive Order No. 183 dated 29 May 2015 which created the Negros Island Region and transferred Negros Occidental and Negros Oriental to Region VI (Western Visayas) and
Region VII (Central Visayas), respectively, was revoked per Executive Order No. 38, s. 2017, effective 7 August 2017.
2/ Composed of the provinces of North Cotabato, South Cotabato, Sultan Kudarat and Sarangani, and the cities of General Santos, Koronadal, Tacurong and Kidapawan.

55 55 55
First Semester 2018
Appendix 5. Philippine Banking System: Density Ratio
End-June 2017 End-December 2017 End-June 2018
Banking Banking Banking

No. of persons No. of persons No. of persons
Offices per Offices per Offices per
served by each served by each served by each
City/ City/ City/
Banking Office 1/ Banking Office 1/ Banking Office 1/
Municipality Municipality Municipality
Nationwide 7 9,176 7 8,934 7 8,817
National Capital Region (NCR) 210 3,602 215 3,537 218 3,503
Luzon 6 9,863 6 9,563 7 9,374

Region I - Ilocos 4 9,810 5 9,007 5 8,673
Region II - Cagayan 4 9,648 4 9,263 4 9,090
Region III - Central Luzon 9 9,635 9 9,438 10 9,275
Region IV-A - CALABARZON 12 8,557 12 8,436 13 8,292
Region IV-B - MIMAROPA 4 11,755 4 11,574 4 11,402
Region V - Bicol 4 14,186 4 13,522 4 13,225
Cordillera Administrative Region (CAR) 2 10,970 2 10,442 2 10,301
Visayas 4 12,386 4 11,913 4 11,546

Region VI - Western Visayas 5 10,012 5 11,482 5 11,347
Region VII - Central Visayas 6 9,545 6 9,747 6 9,272
Region VIII - Eastern Visayas 1 21,809 2 20,751 2 20,229
NIR - Negros Island Region 2/ 5 15,453
Mindanao 3 16,821 3 16,381 3 16,622

Region IX - Zamboanga Peninsula 3 17,488 3 17,325 3 17,474
Region X - Northern Mindanao 4 12,649 4 12,265 4 12,486
Region XI - Davao Region 9 11,901 9 11,528 9 11,713
Region XII - SOCCSKSARGEN 3/ 5 19,981 5 19,124 5 19,153
ARMM 0 202,829 0 205,405 0 207,982
CARAGA 3 13,346 3 13,168 3 13,490
1/ Philippine population based on National Statistics Office (NSO) data

2/ Executive Order No. 183 dated 29 May 2015 which created the Negros Island Region and transferred Negros Occidental and Negros Oriental to Region VI (Western Visayas) and
Region VII (Central Visayas), respectively, was revoked per Executive Order No. 38, s. 2017, effective 7 August 2017.
3/ Composed of the provinces of North Cotabato, South Cotabato, Sultan Kudarat and Sarangani, and the cities of General Santos, Koronadal,
Tacurong and Kidapawan.

56
Appendix
Appendix 6. Philippine Banking System: Number of Automated Teller Machines (ATMs)
On-site Off-site Total
Jun '17 Jun '18 Jun '17 Jun '18 Jun '17 Jun '18
TOTAL 10,917 11,609 8,586 9,275 19,503 20,884
NATIONWIDE 10,916 11,608 8,584 9,273 19,500 20,881
National Capital Region (NCR) 4,275 4,557 3,472 3,581 7,747 8,138
Luzon 3,752 3,992 3,009 3,360 6,761 7,352

Region I - Ilocos 389 420 253 285 642 705
Region II - Cagayan 244 270 133 159 377 429
Region III - Central Luzon 1,041 1,110 770 850 1,811 1,960
Region IV-A - CALABARZON 1,446 1,523 1,470 1,608 2,916 3,131
Region IV-B - MIMAROPA 173 182 84 107 257 289
Region V - Bicol 315 333 183 221 498 554
Cordillera Administrative Region (CAR) 144 154 116 130 260 284
Visayas 1,547 1,626 1,147 1,284 2,694 2,910
Region VI - Western Visayas 382 636 186 355 568 991
Region VII - Central Visayas 647 766 696 800 1,343 1,566
Region VIII - Eastern Visayas 209 224 98 129 307 353
NIR - Negros Island Region 1/ 309 - 167 - 476 -
Mindanao 1,342 1,433 956 1,048 2,298 2,481
Region IX - Zamboanga Peninsula 179 193 116 132 295 325
Region X - Northern Mindanao 297 326 216 253 513 579
Region XI - Davao Region 439 467 344 362 783 829
Region XII - SOCCSKSARGEN 2/ 239 251 165 168 404 419
ARMM 27 27 8 13 35 40
CARAGA 161 169 107 120 268 289
OVERSEAS 1 1 2 2 3 3
1/ Executive Order No. 183 dated 29 May 2015 which created the Negros Island Region and transferred Negros Occidental and Negros Oriental to
Region VI (Western Visayas) and Region VII (Central Visayas), respectively, was revoked per Executive Order No. 38, s. 2017, effective 7 August 2017.
2/ Composed of the provinces of North Cotabato, South Cotabato, Sultan Kudarat and Sarangani, and the cities of General Santos, Koronadal, Tacurong
and Kidapawan.

75 57 75
First Semester 2018
Appendix 7: Philippine Banking System: Number of Banks Authorized to Engage in E-Banking Operations
As of End-June 2018
No. of E-Banking and E-Money Applications

No. of Banks Internet
with Banking thru
Electronic
Electronic BancNet Mobile Bancnet POS
Internet Money Issuers Lendr Program
Banking Mobile Online (Balance Financial Cash-out (Prepaid
Phone banking Banking Inquiry, Fund
ETFPS (BIR) (of Voyager
Facilities (as Banking Services thru Aggregator/ Card/Cash Innovations, Inc.)
(Proprietary) Transfer, Card/Remittance
approved by MobileApps Acquirer
Payment, Card )
the BSP) Checkbook
Reorder)
UNIVERSAL AND COMMERCIAL BANKS 39 15 14 34 6 20 10 18 19 6

THRIFT BANKS 25 7 4 10 7 6 6 2 8 5
Financial Institution Linked Thrift Banks 9 4 4 6 2 4 1 2 4 3
Non-Linked Thrift Banks 16 3 - 4 5 2 5 - 4 2
RURAL AND COOPERATIVE BANKS 14 1 - 1 2 - 8 - 3 2
TOTAL 78 23 18 45 15 26 24 20 30 13
No. of E-Banking and E-Money Applications

PesoNet Instapay
Blockchain-
Send Receive Send Receive
FinTech - Cardless based Digital FinTech -
WeChat Pay Withdrawal Financial Alipay
Services
UNIVERSAL AND COMMERCIAL BANKS 3 6 32 36 5 14 2 3

THRIFT BANKS 1 1 3 4 2 4 - 1
Financial Institution Linked Thrift Banks - 1 1 2 1 2 - -
Non-Linked Thrift Banks 1 - 2 2 1 2 - 1
RURAL AND COOPERATIVE BANKS - - - - - - - -
TOTAL 4 7 35 40 7 18 2 4

58
Appendix
Appendix 8. Philippine Banking System: Profitability Indicators
Interest Income 452.5 498.1 574.7 268.5 319.9
Provision for Lossses on Accrued Interest Income from
Financial Assets 0.3 0.3 0.4 0.3 1.1
Interest Expenses 103.0 111.9 126.9 59.3 80.3
Dividend Income 3.9 4.1 3.3 1.6 1.4
Fee-based Income 70.9 75.9 84.8 40.1 42.5
Trading Income 4.4 12.0 11.1 4.5 9.1
FX Profit/(Loss) 7.4 6.9 7.2 3.7 2.9
Profit/(Loss) from Sale/Redemption/Derecognition of
Non-Trading Financial Assets and Liabilities 17.2 25.2 8.1 3.6 3.7
Profit/(Loss) from Sale/Derecognition of Non-Financial Assets
Profit/(Loss) on Financial Assets and Liabilities 12.0 9.7 13.9 3.8 11.6
Designated at Fair Value through Profit or Loss (0.2) 0.3 0.3 0.3 0.1
Profit/(Loss) on Fair Value Adjustment in Hedge Accounting ... ... (0.0) (0.0) 0.1
Other Income 14.9 15.0 14.7 7.2 7.3
Bad Debts/Provisions for Credit Losses 29.3 39.3 38.3 16.4 18.8
Net Profit Before Share in the Profit/(Loss) of Unconsolidated
Subsidiaries, Associates and Joint Ventures 147.1 163.7 178.9 83.7 97.4
Share in the Profit/(Loss) of Unconsolidated Subsidiaries,
Associates and Joint Ventures 17.7 22.4 27.9 14.1 9.9
Total Profit/Loss Before Tax and Before Minority Interest 164.8 186.1 206.8 97.8 107.4
Total Profit/Loss After Tax and Before Minority Interest 135.3 154.3 168.1 81.3 86.0
Minority Interest in Profit/(Loss) of Subsidiaries 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %
Net Profit/(Loss) 135.3 154.3 168.1 81.3 86.0
Growth Rates
Total Operating Income 2.7% 11.5% 10.4% 6.8% 15.9%
Net Interest Income 8.6% 10.5% 15.9% 14.0% 14.1%
Interest Income 9.9% 10.1% 15.4% 12.9% 19.1%
Provision for Lossses on Accrued Interest Income from
Financial Assets (26.4%) (23.6%) 47.1% 101.4% 240.7%
Interest Expenses 14.6% 8.6% 13.4% 9.0% 35.5%
Non-interest Income (10.4%) 14.2% (3.8%) (11.3%) 21.7%
Dividend Income (5.1%) 5.7% (19.2%) (26.4%) (13.0%)
Fee-based Income 7.2% 7.2% 11.6% 16.4% 6.2%
Trading Income (56.4%) 172.1% (7.5%) (51.6%) 101.3%
FX Profit/(Loss) 30.9% (6.6%) 4.0% 197.1% (21.4%)
Profit/(Loss) from Sale/Redemption/Derecognition of
Non-Trading Financial Assets and Liabilities (12.1%) 46.5% (67.9%) (74.6%) 2.7%
Profit/(Loss) from Sale/Derecognition of Non-Financial Assets
Profit/(Loss) on Financial Assets and Liabilities (41.3%) (19.6%) 44.4% (30.6%) 206.1%
Designated at Fair Value through Profit or Loss (104.6%) (288.2%) (7.2%) 27.5% (44.5%)
Profit/(Loss) on Fair Value Adjustment in Hedge Accounting (2,545.6%) (52.2%) (126.0%) (170.9%) (2,365.3%)
Other Income (8.2%) 0.6% (1.8%) 21.8% 1.8%
Non-Interest Expenses 6.0% 10.0% 10.8% 8.8% 16.0%
Losses/Recoveries on Financial Assets (13.8%) 35.6% 12.3% 8.9% 12.8%
Bad Debts/Provisions for Credit Losses (0.4%) 34.0% (2.6%) 6.3% 14.5%
Recovery on Charged-Off Assets 92.7% 28.8% (51.0%) (6.0%) 23.6%
Net Profit Before Share in the Profit/(Loss) of Unconsolidated
Subsidiaries, Associates and Joint Ventures (0.9%) 11.3% 9.3% 2.5% 16.4%
Share in the Profit/(Loss) of Unconsolidated Subsidiaries,
Associates and Joint Ventures 7.1% 26.3% 24.8% 22.9% (29.6%)
Total Profit/Loss Before Tax and Before Minority Interest (0.1%) 12.9% 11.1% 5.0% 9.8%
Income Tax Expense 0.1% 7.6% 21.9% 10.1% 29.0%
Total Profit/Loss After Tax and Before Minority Interest (0.2%) 14.0% 8.9% 4.0% 5.8%
Minority Interest in Profit/(Loss) of Subsidiaries
Net Profit/(Loss) (0.2%) 14.0% 8.9% 4.0% 5.8%
* Data for R/CBs for end-March 2017

p/ Preliminary; Data for R/CBs for end-March 2018
. . . Less than P0.05 billion
(0.0) Less than negative P0.05 billion

95 59 95
First Semester 2018
1/
Appendix 9. Philippine Banking System: Asset Quality Indicators
Total Assets 12,089.1 13,591.2 15,166.2 14,236.4 15,704.4
2/
Gross Assets 12,281.9 13,796.2 15,379.7 14,445.4 15,932.7
Total Loan Portfolio (TLP) 3/ 6,527.3 7,612.1 8,865.6 8,020.2 9,352.0
3/
TLP , net of Interbank Loans (IBL) 6,312.7 7,345.6 8,613.6 7,790.4 9,071.9
TLP, net of ACL 6,365.6 7,439.3 8,681.3 7,842.5 9,153.0
Gross Non-Performing Loans (NPL) 136.5 144.2 153.0 155.6 174.1
4/
Net NPL 41.9 43.3 48.9 54.2 83.5
Allowance for Credit Losses (ACL) 161.6 172.8 184.3 177.7 199.1
ROPA 3/ 5/ 113.0 110.6 108.8 107.1 108.3
ROPA (inclusive of performing SCR) 124.6 124.0 122.0 119.9 125.5
6/
Provisions for ROPA 31.1 32.2 29.3 31.3 29.2
3/
Restructured Loans (RL) 34.5 37.6 46.7 37.6 44.6
RL, Performing 17.9 19.2 28.4 16.6 22.3
7/
Distressed Assets 267.4 274.0 290.2 279.2 304.7
8/
Non-Performing Assets (NPAs) 249.5 254.8 261.8 262.6 282.3
9/
Allowance on NPA 192.8 205.0 213.6 209.0 228.3
Performing Sales Contract Receivables 11.6 13.4 13.2 12.9 17.3
Growth Rates
Total Assets 8.2 % 12.4 % 11.6 % 13.5 % 10.3 %
2/
Gross Assets 8.1 % 12.3 % 11.5 % 13.4 % 10.3 %
3/
Total Loan Portfolio (TLP) 11.9 % 16.6 % 16.5 % 18.0 % 16.6 %
Interbank Loans Receivable (IBL) (12.9%) 24.2 % (5.4%) 11.4 % 21.9 %
TLP 3/, net of Interbank Loans (IBL) 13.0 % 16.4 % 17.3 % 18.2 % 16.4 %
TLP, net of ACL 12.3 % 16.9 % 16.7 % 18.3 % 16.7 %
Gross Non-Performing Loans (NPL) 1.2 % 5.6 % 6.1 % 4.7 % 11.9 %
Net NPL 4/ 20.5 % 3.4 % 12.9 % 0.6 % 54.1 %
Allowance for Credit Losses (ACL) 0.0 % 6.9 % 6.6 % 7.0 % 12.0 %
3/ 5/
ROPA (6.6%) (2.1%) (1.7%) (4.4%) 1.2 %
ROPA (inclusive of performing SCR) (6.3%) (0.4%) (1.7%) (3.8%) 4.7 %
6/
Provisions for ROPA (12.7%) 3.3 % (9.0%) (3.8%) (6.6%)
3/
Restructured Loans (RL) (2.0%) 9.3 % 24.0 % 12.7 % 18.9 %
RL, Performing (11.9%) 7.2 % 47.7 % 6.2 % 34.6 %
7/
Distressed Assets (3.2%) 2.5 % 5.9 % 1.1 % 9.1 %
8/
Non-Performing Assets (NPAs) (2.5%) 2.1 % 2.7 % 0.8 % 7.5 %
Allowance on NPA 9/ (2.3%) 6.3 % 4.2 % 5.2 % 9.2 %
Performing Sales Contract Receivables (3.0%) 15.7 % (1.7%) 0.7 % 34.1 %
1/ Figures are computed in accordance with the NPL definition as prescribed under BSP Circular No. 772 dated 16 October 2012 effective
01 January 2013.
2/ Gross Assets refer to Total Assets plus Allowance on NPA.
3/ Gross of Provisions
4/ Net NPLs refer to Gross NPLs less specific allowance for credit losses on TLP.
5/ Real and Other Properties Acquired; ROPA includes Non-Current Assets Held for Sale and Non-Performing Sales Contract Receivables (SCR).
6/ Provisions for ROPA are inclusive of Accumulated Depreciation
7/ Distressed Assets refer to NPAs plus performing RLs.
8/ NPAs refer to Gross NPLs plus ROPA.
9/ Allowance on NPA refers to ACL plus Provisions for ROPA.

60
Appendix
Appendix 10. Foreign Currency Deposit Unit: Financial Highlights
2015 2016 2017 2017 2018
In US$ Million
Income Statement
Total Operating Income 969.0 1,281.9 1,078.3 498.4 548.7
Bad Debts/Provision for Credit Losses (4.5) (15.8) (32.4) (15.5) (10.7)
Net Profit Before Share in the Profit/(Loss) of
Unconsolidated Subs., Associates & Joint Ventures 781.1 1,084.1 859.0 397.7 448.1
Share in the Profit/(Loss) of Unconsolidated
Subsidiaries, Associates & Joint Ventures - - - - -
Total Profit/Loss Before Tax & Before Minority Interest 781.1 1,084.1 859.0 397.7 448.1
Total Profit/Loss After Tax & Before Minority Interest 756.6 1,058.6 833.2 385.1 431.7
Net Profit or Loss 756.6 1,058.6 833.2 385.1 431.7
Balance Sheet
1
Total Assets 44,076.7 48,201.1 50,313.9 48,201.1 49,545.5
Cash and Due from Banks 5,227.9 6,931.9 6,952.4 6,931.9 3,720.3
Financial Assets, gross 22,312.5 22,332.1 22,471.5 22,332.1 25,118.2
Accumulated Market Gains/Losses (21.4) (23.0) (54.8) (23.0) (207.6)
Financial Assets, net 22,260.5 22,285.4 22,502.6 22,285.4 24,875.9
Interbank Loans Receivable (IBL), net 3,270.5 4,472.6 3,734.6 4,472.6 3,714.9
Loans, gross (exclusive of IBL) 12,723.1 13,987.1 16,355.5 13,987.1 16,465.9
2
Loans, net (exclusive of IBL) 12,581.6 13,839.6 16,211.0 13,839.6 16,324.3
Equity investments, net - - - - -
ROPA, net 0.5 0.2 2.8 0.2 2.8
Other Assets, net 735.7 671.4 910.4 671.4 907.4
Total Liabilities 43,432.1 47,525.1 49,618.9 47,525.1 49,290.5
Financial Liabilities Held for Trading 131.0 131.8 120.7 131.8 168.9
Financial Liabilities DFVPL - - - - -
Deposit Liabilities 32,445.6 35,871.7 39,204.5 35,871.7 37,944.6
Due to Other Banks 726.6 688.0 528.8 688.0 300.2
Bills Payable 6,860.8 7,375.2 6,374.3 7,375.2 6,215.0
Bonds Payable, net 2,033.8 2,034.7 2,160.1 2,034.7 3,055.4
Unsecured Subordinated Debt, net - - - - -
3
Due to HO/Br./Agencies/FCDU/RBU, net 991.3 1,083.8 869.8 1,083.8 1,201.7
4
Total Capital Accounts 644.6 676.0 695.0 676.0 255.0
1 Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks
2 Inclusive of General Loan Loss Provision
3 Net of Due from Head Office/Branches/Agencies (Philippine branches of foreign banks) and Due from FCDU/RBU
4 Revised based on the Financial Reporting Package (FRP) data

16 61 16
First Semester 2018
Appendix 11. Foreign Currency Deposit Unit: Growth Rates
2015 2016 2017 2017 2018
Growth Rates
Income Statement
Total Operating Income -11.6% 11.3% -15.9% -21.9% 10.1%
Net Interest Income 5.4% 14.3% 12.9% 2.9% 12.7%
Non-interest Income -39.7% 2.7% -53.8% -57.5% 1.2%
Non-Interest Expenses 0.8% 1.4% 1.9% -9.2% 8.8%
Losses/Recoveries on Financial Assets -84.6% -404.4% -134.5% -359.5% 49.0%
Bad Debts/Provision for Credit Losses -75.8% -247.8% -140.3% -364.7% 30.6%
Recovery on Charged-Off Assets 18.9% -48.8% -59.7% -51.0% 41.9%
Unconsolidated Subs., Associates & Joint Ventures -12.7% 10.0% -20.8% -26.5% 12.7%
Subsidiaries, Associates & Joint Ventures - - - - -
Total Profit/Loss Before Tax & Before Minority Interest -12.7% 10.0% -20.8% -26.5% 12.7%
Income Tax Expense -3.8% 5.6% 1.5% 41.4% 30.1%
Total Profit/Loss After Tax & Before Minority Interest -13.0% 10.1% -21.3% -27.6% 12.1%
Net Profit or Loss -13.0% 10.1% -21.3% -27.6% 12.1%
Balance Sheet
1
Total Assets 5.8% 9.4% 4.4% 4.9% 2.8%
Cash and Due from Banks -10.3% 32.6% 30.0% 1.9% -46.3%
Financial Assets, gross 21.5% 0.1% 62.0% -4.1% 12.5%
Allowance for Credit Losses -11.9% -22.6% -23.0% -24.3% 46.3%
Accumulated Market Gains/Losses -115.8% -7.4% 338.2% -61.1% -803.1%
Financial Assets, net 20.5% 0.1% 1.0% -4.6% 11.6%
Interbank Loans Receivable (IBL), net -21.3% 36.8% -16.5% 5.3% -16.9%
Loans, gross (exclusive of IBL) 1.7% 9.9% 16.9% 23.5% 17.7%
2
Allowance for Probable Losses 3.0% 4.2% -2.0% -12.4% -4.0%
Loans, net (exclusive of IBL) 1.7% 10.0% 17.1% 24.0% 18.0%
Equity investments, net - - -
ROPA, net 27.8% -57.9% 1323.3% -60.3% 1327.0%
Other Assets, net -12.3% -8.7% 35.6% 29.8% 35.1%
Total Liabilities 7.1% 9.4% 4.4% 5.6% 3.7%
Financial Liabilities Held for Trading -42.3% 0.6% -8.4% -57.0% 28.2%
Financial Liabilities DFVPL - - -
Deposit Liabilities 2.1% 10.6% 9.3% 7.3% 5.8%
Due to Other Banks -11.3% -5.3% -23.1% -23.5% -56.4%
Bills Payable 46.3% 7.5% -13.6% 10.0% -15.7%
Bonds Payable, net 43.0% 0.0% 6.2% -15.8% 50.2%
Unsecured Subordinated Debt, net - - - - -
Other Liabilities -48.5% 39.9% 6.1% -18.2% 19.1%
3
Due to HO/Br./Agencies/FCDU/RBU, net -11.9% 9.3% -19.7% -2.7% 10.9%
4
Total Capital Accounts -42.4% 4.9% 2.8% -37.2% -62.3%
1 Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks
2 Inclusive of General Loan Loss Provision
3 Net of Due from Head Office/Branches/Agencies (Philippine branches of foreign banks) and Due from FCDU/RBU
4 Revised based on the Financial Reporting Package (FRP) data

62
Appendix
Appendix 12. Foreign Currency Deposit Unit: Selected Performance Indicators
2015 2016 2017 2017 2018
Selected Ratios
Liquidity
Liquid Assets to Deposits 1 (excl. of ROPs) 56.4 54.8 49.7 52.0 46.7
Liquid Assets to Deposits 1 (incl. of ROPs) 84.7 81.4 75.1 81.4 75.4
Loans, gross to Deposits 49.3 51.5 51.2 51.5 53.2
Asset Quality
Non-Performing Loans (NPL) Ratio 2 0.2 0.4 0.2 0.2 0.1
NPL Coverage Ratio 2 498.8 243.1 543.4 547.4 681.6
2
Non-Performing Assets (NPA) to Gross Assets 0.1 0.1 0.1 0.1 0.0
NPA Coverage Ratio 2 489.1 242.3 490.3 543.0 598.9
Profitability
Cost to Income Ratio 19.0 14.4 17.4 17.1 14.4
Return on Assets (ROA) 1.8 2.3 1.7 0.8 2.3
Net Interest Margin 1.7 1.6 1.7 0.8 1.6
1 Liquid assets refers to Cash and Due from Banks plus Financial Assets, net of amortization
(net of financial assets in equity securities and allowance for credit losses)
2 Exclusive of IBL

36 63 36
First Semester 2018
Appendix 13. Total Trust Operations (Philippine Banks & NBFIs): Financial Highlights
Levels (P Billion) 2015 2016 2017 2017 2018
TOTAL ASSETS 2,671.4 2,961.0 3,417.9 3,127.2 3,243.6

Cash and Due from banks 384.6 287.4 2.0 2.0 1.3
Cash on Hand, Checks and Other Cash Items 0.0 0.0 0.0 0.0 0.0
Reserve Deposit Accounts 5.7 - - - -
Special Deposit Accounts 378.9 - - - -
Demand Deposit Account - 1.9 2.0 2.0 1.3
Overnight Deposit Account - 53.8 - - -
Term Deposit Account - 231.7 - - -
Deposits in Banks 535.7 729.3 900.9 908.2 894.8
Financial Assets, gross (net of amortization) 1,397.0 1,547.7 1,900.9 1,686.3 1,897.7
Accumulated Market Gains/Losses 80.0 59.6 79.8 93.0 4.5
Financial Assets, net 1,476.3 1,606.3 1,979.7 1,778.4 1,900.9
Loans, (gross) 73.8 69.6 85.6 84.1 86.8
Allowance for probable losses 6.5 1.9 2.9 2.0 2.6
Loans, net 67.4 67.7 82.6 82.1 84.2
Equity Investments (gross) 88.0 82.1 81.5 81.8 79.7
Allowance for probable losses 2.5 2.8 2.6 2.6 2.8
Accumulated Market Gain/(Loss) - 0.0 0.0 - -
Equity Investments (net) 85.4 79.3 78.9 79.2 76.9
ROPA (net) 0.1 0.1 0.1 0.1 0.1
Sales Contract Receivables (Non-Performing) - - - - -
Other assets 121.9 190.7 373.7 277.2 285.3
TOTAL ACCOUNTABILITIES 2,671.4 2,961.0 3,417.9 3,127.2 3,243.6

Wealth/Asset/Fund Management Accounts (Trust) 1,559.1 1,715.3 1,574.2 1,706.4 1,444.6
UITF 677.4 831.7 768.0 812.9 702.2
Employee Benefit 311.3 318.0 352.0 338.4 349.9
Pre-Need 114.9 115.0 117.3 114.8 113.8
Other Institutional Trust Accounts 45.3 36.6 35.8 37.4 31.1
Personal Trust 391.5 393.8 286.1 383.9 231.4
Personal Pension Fund - - - - -
Personal Retirement Fund 0.2 0.1 0.1 0.1 0.1
Other IndividualTrust Accounts 18.5 20.1 14.8 18.9 16.1
Wealth/Asset/Fund Management Accounts (Agency) 799.2 883.0 1,297.4 975.9 1,328.8
Employee Benefit 52.4 53.8 53.3 54.6 50.4
Pre-Need 0.8 0.8 0.8 0.8 0.7
Other Institutional Agency Accounts 506.0 564.3 792.9 618.3 743.7
Personal Pension Fund - - - - -
Personal Retirement Fund - 0.0 0.0 0.0 0.0
Other Individual Agency Accounts 240.0 264.1 450.4 302.2 534.0
Other Fiduciary Services 309.7 361.3 545.8 444.1 469.8
UITF 11.7 16.0 14.0 15.1 11.8
Court Trusts 66.0 65.9 65.8 76.5 65.8
Corporate Fiduciary Trust 45.7 40.5 49.1 42.9 63.1
Escrow 52.1 37.2 41.6 34.5 48.0
Custodianship 91.9 158.5 332.3 239.7 240.4
Safekeeping 0.1 0.1 0.0 0.1 0.0
Others 42.2 43.0 42.9 35.3 40.6
Advisory/Consultancy - - - - -
Special Purpose Trust 3.4 1.4 0.5 0.8 0.5

0.0 Less than P0.05 billion

64
Appendix
Appendix 14. Total Trust Operations (Philippine Banks & NBFIs): Growth Rates
2014 2015 2016 2017 2018
TOTAL ASSETS 3.1 % 0.3 % 10.8 % 10.4 % 3.7 %

Cash and Due from banks (4.1%) 7.5 % (25.3%) (99.5%) (37.8%)
Cash on Hand, Checks and Other Cash Items (48.6%) 24.7 %
Reserve Deposit Accounts 1,641.7 % (25.2%) (100.0%)
Special Deposit Accounts (6.0%) 8.2 % (100.0%)
Demand Deposit Account (23.9%) (37.9%)
Overnight Deposit Account (100.0%)
Term Deposit Account (100.0%)
Deposits in Banks (4.4%) 7.9 % 36.2 % 70.1 % (1.5%)
Financial Assets, gross (net of amortization) 6.6 % 7.7 % 10.8 % 14.4 % 12.5 %
Accumulated Market Gains/Losses 35.4 % (29.6%) (25.5%) (26.8%) (95.1%)
Allowance for Credit Losses (6.9%) (7.5%) 51.2 % 45.2 % 41.5 %
Financial Assets, net 8.4 % 4.7 % 8.8 % 11.2 % 6.9 %
Loans, (gross) 6.6 % (4.8%) (5.7%) 35.3 % 3.2 %
Allowance for probable losses 7.7 % (8.8%) (70.7%) (56.2%) 26.6 %
Loans, net 6.5 % (4.4%) 0.5 % 42.6 % 2.6 %
Equity Investments (gross) (0.7%) 16.6 % (6.7%) 0.3 % (2.6%)
Allowance for probable losses 55.2 % (12.1%) 9.5 % (8.9%) 7.7 %
Accumulated Market Gain/(Loss)
Equity Investments (net) (2.1%) 17.8 % (7.1%) 0.6 % (3.0%)
ROPA (net) 1.1 % (11.6%) (37.9%) (45.1%) 61.1 %
Sales Contract Receivables (Non-Performing)
Other assets 2.8 % (52.4%) 56.4 % 110.2 % 2.9 %
TOTAL ACCOUNTABILITIES 3.1 % 0.3 % 10.8 % 10.4 % 3.7 %

Wealth/Asset/Fund Management Accounts (Trust) 6.3 % 6.8 % 10.0 % 2.4 % (15.3%)
UITF 5.7 % 12.9 % 22.8 % 7.3 % (13.6%)
Employee Benefit 13.0 % 2.6 % 2.2 % 3.3 % 3.4 %
Pre-Need 2.9 % 1.5 % 0.0 % (3.1%) (0.9%)
Other Institutional Trust Accounts (28.8%) (12.1%) (19.3%) (5.4%) (17.0%)
Personal Trust 8.6 % 5.1 % 0.6 % (5.2%) (39.7%)
Personal Pension Fund
Personal Retirement Fund 19.6 % (7.2%) (51.8%) (6.8%) (6.8%)
Other IndividualTrust Accounts 69.3 % 0.4 % 9.1 % 4.4 % (14.7%)
Wealth/Asset/Fund Management Accounts (Agency) 3.4 % 5.5 % 10.5 % 16.0 % 36.2 %
Employee Benefit 10.9 % (8.1%) 2.8 % (0.7%) (7.7%)
Pre-Need 104.0 % (40.5%) (0.5%) (16.7%) (13.6%)
Other Institutional Agency Accounts 17.0 % 8.3 % 11.5 % 15.5 % 20.3 %
Personal Pension Fund (100.0%)
Personal Retirement Fund (100.0%) 8.2 % (31.2%)
Other Individual Agency Accounts (17.4%) 3.5 % 10.1 % 20.9 % 76.7 %
Other Fiduciary Services (5.9%) (29.6%) 16.6 % 38.0 % 5.8 %
UITF 5.1 % 70.6 % 36.6 % (3.0%) (21.9%)
Court Trusts (3.9%) 2.2 % (0.1%) 16.0 % (14.0%)
Corporate Fiduciary Trust 10.4 % 41.4 % (11.4%) 9.1 % 47.0 %
Escrow (31.0%) (22.2%) (28.6%) (41.1%) 38.9 %
Custodianship 1.4 % (59.1%) 72.4 % 157.5 % 0.3 %
Safekeeping 10.5 % (5.7%) 3.2 % 40.2 % (43.3%)
Others (2.7%) (6.0%) 1.9 % (28.1%) 15.1 %
Advisory/Consultancy
Special Purpose Trust (34.4%) (45.4%) (59.1%) (52.1%) (39.1%)
0.0% Less than 0.05%

56 65 56
First Semester 2018
Appendix 15. Total Trust (Philippine Banks and NBFIs) : Selected Performance Indicators
Selected Ratios 2015 2016 2017 2017 2018
Liquidity
Cash and Due from Banks to Total Accountabilities 14.4% 9.7% 0.1% 0.1% 0.0%
Liquid Assets to Total Accountabilities 66.7% 62.0% 55.7% 54.0% 58.5%
Loans (gross) to Total Accountabilities 2.8% 2.4% 2.5% 2.7% 2.7%
Asset Quality
Non-Performing Loans (NPL) Ratio 1.2% 1.2% 1.5% 2.0% 1.7%
NPL Coverage Ratio 743.2% 219.4% 226.6% 121.2% 178.1%
Non-Performing Assets (NPA) to Gross Assets 0.0% 0.0% 0.0% 0.1% 0.1%
NPA Coverage Ratio 592.6% 190.6% 208.3% 115.0% 160.5%
0.0% Less than 0.05%

66
Appendix
Appendix 16. Total Trust Operations (Philippine Banks & NBFIs): Balance Sheet Structure
2015 2016 2017 2017 2018
ASSETS AND ACCOUNTABILITIES

TOTAL ASSETS 100.0% 100.0% 100.0% 100.0% 100.0%
Cash and Due from banks 14.4% 9.7% ... ... ...
Cash on Hand, Checks and Other Cash Items ... ... ... ... ...
Reserve Deposit Accounts 0.2% ... ... ... ...
Special Deposit Accounts 14.2% ... ... ... ...
Demand Deposit Account ... ... ... ... ...
Overnight Deposit Account ... 1.8% ... ... ...
Term Deposit Account ... 7.8% ... ... ...
Deposits in Banks 20.1% 24.6% 26.4% 29.0% 27.6%
Financial Assets, gross (net of amortization) 52.3% 52.3% 55.6% 53.9% 58.5%
Accumulated Market Gains/Losses 3.0% 2.0% 2.3% 3.0% 0.1%
Allowance for Credit Losses ... ... ... ... ...
Financial Assets, net 55.3% 54.2% 57.9% 56.9% 58.6%
Loans, (gross) 2.8% 2.4% 2.5% 2.7% 2.7%
Allowance for probable losses 0.2% ... ... 0.1% ...
Loans, net 2.5% 2.3% 2.4% 2.6% 2.6%
Equity Investments (gross) 3.3% 2.8% 2.4% 2.6% 2.5%
Allowance for probable losses ... ... ... 0.1% ...
Accumulated Market Gain/(Loss) ... ... ... ... ...
Equity Investments (net) 3.2% 2.7% 2.3% 2.5% 2.4%
ROPA (net) ... ... ... ... ...
Sales Contract Receivables (Non-Performing) ... ... ... ... ...
Other assets 4.6% 6.4% 10.9% 8.9% 8.8%
TOTAL ACCOUNTABILITIES 100.0% 100.0% 100.0% 100.0% 100.0%

Wealth/Asset/Fund Management Accounts (Trust) 58.4% 57.9% 46.1% 54.6% 44.5%
UITF 25.4% 28.1% 22.5% 26.0% 21.6%
Employee Benefit 11.7% 10.7% 10.3% 10.8% 10.8%
Pre-Need 4.3% 3.9% 3.4% 3.7% 3.5%
Other Institutional Trust Accounts 1.7% 1.2% 1.0% 1.2% 1.0%
Personal Trust 14.7% 13.3% 8.4% 12.3% 7.1%
Personal Pension Fund ... ... ... ... ...
Personal Retirement Fund ... ... ... ... ...
Other Individual Trust Accounts 0.7% 0.7% 0.4% 0.6% 0.5%
Wealth/Asset/Fund Management Accounts (Agency) 29.9% 29.8% 38.0% 31.2% 41.0%
Employee Benefit 2.0% 1.8% 1.6% 1.7% 1.6%
Pre-Need ... ... ... ... ...
Other Institutional Agency Accounts 18.9% 19.1% 23.2% 19.8% 22.9%
Personal Pension Fund ... ... ... ... ...
Personal Retirement Fund ... ... ... ... ...
Other Individual Agency Accounts 9.0% 8.9% 13.2% 9.7% 16.5%
Other Fiduciary Services 11.6% 12.2% 16.0% 14.2% 14.5%
UITF 0.4% 0.5% 0.4% 0.5% 0.4%
Court Trusts 2.5% 2.2% 1.9% 2.4% 2.0%
Corporate Fiduciary Trust 1.7% 1.4% 1.4% 1.4% 1.9%
Escrow 2.0% 1.3% 1.2% 1.1% 1.5%
Custodianship 3.4% 5.4% 9.7% 7.7% 7.4%
Safekeeping ... ... ... ... ...
Others 1.6% 1.5% 1.3% 1.1% 1.3%
Advisory/Consultancy ... ... ... ... ...
Special Purpose Trust 0.1% ... ... ... ...
Figures may not add up due to rounding-off.

. . . Less than 0.05 percent

76 67 76
First Semester 2018
Appendix 17. Non-Banks with Quasi-Banking Functions (NBQBs)

Financial Highlights
Levels (P Billion) 2015 2016 2017 2017 2018
Income Statement
Operating Expenses 12.5 13.5 14.0 6.8 8.0
Bad Debts/Provisions for Probable 4.2 4.7 4.8 2.4 2.8
Losses
Other Operating Expenses 8.3 8.8 9.2 4.5 5.1
Net Operating Income 6.4 8.4 11.8 5.5 4.9
Extraordinary Credits/(Charges) 1.2 1.0 1.1 0.5 0.8
Net Income Before Tax 7.5 9.5 13.0 6.0 5.6
Provisions for Income Tax 2.2 2.8 3.6 1.6 1.7
Net Income After Tax (NIAT) 5.3 6.6 9.4 4.4 3.9
Balance Sheet
Total Assets 205.1 221.1 260.9 237.4 260.6
Cash and Due from Banks 33.3 37.7 42.0 36.0 35.7
Loans, gross (exclusive of IBL) 105.2 133.7 167.3 147.4 178.5
Loans, net (exclusive of IBL) 101.9 130.1 163.3 143.5 172.3
Investments, net 55.5 42.8 44.3 46.8 40.5
ROPA, net 0.6 0.6 0.6 0.6 0.6
Other Assets 10.6 9.9 9.8 9.8 11.6
Total Liabilities 159.6 175.2 210.0 192.7 210.1
Bills Payable 127.2 137.8 177.6 156.7 176.8

68
Appendix

Selected Performance Indicators
Growth Rates 2015 2016 2017 2017 2018
Income Statement
Total Operating Income (1.4 %) 16.2 % 17.9 % 16.8 % 4.3 %
Net Interest Income 12.5 % 13.3 % 24.0 % 23.1 % 17.0 %
Non-interest Income (24.3 %) 23.2 % 4.3 % 4.1 % (26.1 %)
Operating Expenses 8.7 % 7.9 % 4.0 % 5.1 % 17.3 %
Bad Debts/Provisions for Probable Losses 9.2 % 12.0 % 2.6 % 5.8 % 21.0 %
Other Operating Expenses 8.5 % 5.8 % 4.7 % 4.7 % 15.3 %
Net Operating Income (16.7 %) 32.6 % 40.3 % 35.5 % (11.8 %)
Extraordinary Credits/(Charges) (10.6 %) (13.4 %) 13.1 % (14.6 %) 52.1 %
Net Income Before Tax (15.8 %) 25.5 % 37.4 % 29.1 % (6.4 %)
Provisions for Income Tax (7.1 %) 24.9 % 26.6 % 30.2 % 5.8 %
Net Income After Tax (NIAT) (19.1 %) 25.7 % 41.9 % 28.7 % (11.0 %)
Balance Sheet
Total Assets 8.2 % 7.8 % 18.0 % 15.3 % 9.8 %
Cash and due from Banks 12.5 % 13.0 % 11.5 % (3.1 %) (0.8 %)
Interbank Loans Receivable (IBL) 51.9 % (100.0 %) 300.0 % 1,554.4 % (34.6 %)
Loans, gross (exclusive of IBL) 14.3 % 27.1 % 25.1 % 27.5 % 21.1 %
Allowance for Probable Losses 11.0 % 8.5 % 10.3 % (3.7 %) 75.3 %
Loans, net (exclusive of IBL) 14.4 % 27.7 % 25.5 % 28.6 % 20.1 %
Investments, net (2.3 %) (22.9 %) 3.6 % 2.6 % (13.5 %)
ROPA, net (24.7 %) (0.0 %) 13.1 % 2.9 % (4.9 %)
Other Assets (5.6 %) (6.7 %) (1.2 %) (11.1 %) 18.5 %
Total Liabilities 10.0 % 9.8 % 19.8 % 23.1 % 9.0 %
Bills Payable 11.6 % 8.3 % 28.9 % 26.6 % 12.8 %
Other Liabilities 3.9 % 15.6 % (13.4 %) 10.0 % (7.4 %)
Total Capital Accounts 2.4 % 0.7 % 11.1 % (9.5 %) 12.8 %
Selected Ratios
Profitability
Cost-to-Income 1/ 44.1 % 40.2 % 35.7 % 38.0 % 37.5 %
Return on Equity (ROE) 11.7 % 14.5 % 19.5 % 16.2 % 18.8 %
Liquidity
Cash and Due from Banks to Bills Payable 26.2 % 27.3 % 23.7 % 23.0 % 20.2 %
Liquid Assets to Bills Payable 2/ 63.9 % 52.6 % 43.5 % 47.4 % 36.1 %
Loans, gross to Bills Payable 85.3 % 97.1 % 94.7 % 94.5 % 101.3 %
Asset Quality
Non-performing Loans (NPL) 4.5 % 3.9 % 3.6 % 3.8 % 3.9 %
NPL Coverage 68.9 % 69.4 % 65.5 % 68.9 % 96.6 %
Non-Performing Assets (NPA) to Gross Assets 2.6 % 2.6 % 2.6 % 2.6 % 2.9 %
NPA Coverage 62.1 % 63.3 % 60.2 % 63.3 % 89.7 %
Capital Adequacy
Paid-in Capital to Total Capital Accounts 27.6 % 30.4 % 31.1 % 31.2 % 31.5 %
Business Mix
Total Investments (gross) to Total Assets 26.8 % 19.2 % 16.8 % 19.4 % 15.8 %
Total Loans (gross) to Total Assets 52.9 % 60.5 % 64.4 % 62.4 % 68.7 %
p
1/ Cost-to-Income Ratio refers to operating expenses, exclusive of bad debts and provisions to total operating income
2/ Liquid Assets refer to Cash and Due from Banks plus Investments,net (less equity investments,net)

96 69 96
First Semester 2018

Profitability Indicators
Levels (P Billion) 2015 2016 2017 2017 2018
Interest Income 17.9 19.9 24.5 11.3 13.7
Fee-based Income 4.7 5.3 5.0 2.6 2.5
Trading Income (0.2) 0.2 0.8 0.5 (0.2)
Other Income 1.0 1.3 1.3 0.5 0.4
Bad Debts/Provisions for Probable Losses 4.2 4.7 4.8 2.4 2.8
Extraordinary Credits/(Charges) 1.2 1.0 1.1 0.5 0.8
Growth Rates
Total Operating Income (1.4 %) 16.2 % 17.9 % 16.8 % 4.3 %
Interest Income (0.2 %) (19.9 %) (15.1 %) 21.2 % 21.1 %
Interest Expenses 15.4 % 5.0 % 19.9 % 15.6 % 34.7 %
Non-interest Income (24.3 %) 23.2 % 4.3 % 4.1 % (26.1 %)
Fee-based Income 3.7 % 12.7 % (5.7 %) 2.2 % (2.8 %)
Trading Income (114.0 %) (192.7 %) 300.3 % 236.0 % (144.4 %)
Other Income (17.3 %) 27.3 % 0.3 % (36.3 %) (23.6 %)
Operating Expenses 8.7 % 7.9 % 4.0 % 5.1 % 17.3 %
Bad Debts/Provisions for Probable Losses 9.2 % 12.0 % 2.6 % 5.8 % 21.0 %
Other Operating Expenses 8.5 % 5.8 % 4.7 % 4.7 % 15.3 %
Net Operating Income (16.7 %) 32.6 % 40.3 % 35.5 % (11.8 %)
Extraordinary Credits/(Charges) (10.6 %) (13.4 %) 13.1 % (14.6 %) 52.1 %
Net Income Before Tax (15.8 %) 25.5 % 37.4 % 29.1 % (6.4 %)
Provisions for Income Tax (7.1 %) 24.9 % 26.6 % 30.2 % 5.8 %
Net Income After Tax (NIAT) (19.1 %) 25.7 % 41.9 % 28.7 % (11.0 %)
Selected Ratios
Earning Asset Yield 1/ 12.0 % 12.3 % 13.2 % 17.1 % 13.7 %
Funding Cost 2/ 3.7 % 3.6 % 3.6 % 3.9 % 4.0 %
Interest Spread 3/ 8.3 % 8.7 % 9.6 % 13.2 % 9.7 %
Net Interest Margin 4/ 9.0 % 9.4 % 10.1 % 9.9 % 10.3 %
Non-interest Income to Total Operating Income 29.1 % 30.8 % 27.3 % 29.1 % 23.1 %
Cost-to-Income 5/ 44.1 % 40.2 % 35.7 % 38.0 % 37.5 %
6/ 2.7 % 3.1 % 3.9 % 3.4 % 3.6 %
Return on Assets (ROA)
6/ 11.7 % 14.5 % 19.5 % 16.2 % 18.8 %
Return on Equity (ROE)
1/ Earning Asset Yield refers to the ratio of interest income to average earning assets
2/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities
3/ Interest Spread refers to the difference between earning asset yield and funding cost
4/ Net Interest Margin refers to the ratio of net interest income to average earning assets
6/ ROA and ROE refer to the ratio of annualized NIAT to average assets and capital, respectively.

70
Appendix

Asset Quality Indicators
Levels (P Billion) 2015 2016 2017 2017 2018
Total Assets 205.1 221.1 260.9 237.4 260.6
1/ 208.5 224.8 265.1 241.4 267.5
Gross Assets
Total Loan Portfolio (TLP) 108.4 133.7 168.1 148.2 179.0
TLP, (exclusive of IBL) 105.2 133.7 167.3 147.4 178.5
TLP, net (exclusive of IBL) 101.9 130.1 163.3 143.5 171.8
Non-Performing Loans (NPL) 4.8 5.2 6.1 5.6 7.0
Loan Loss Reserves (LLR) 3.3 3.6 4.0 3.9 6.8
ROPA, gross 0.6 0.7 0.8 0.7 0.7
Allowance for ROPA 0.1 0.1 0.2 0.1 0.2
Restructured Loans (RL), gross 0.3 0.2 0.3 0.4 0.3
RL, current 0.1 0.1 0.0 0.1 0.0
2/ 5.5 5.9 6.9 6.3 7.7
Non-performing Assets (NPAs)
Allowance for Probable Losses on NPAs 3.4 3.7 4.2 4.0 6.9
Growth Rates
Total Assets 8.2 % 7.8 % 18.0 % 15.3 % 9.8 %
Gross Assets 1/ 8.2 % 7.8 % 17.9 % 14.9 % 10.8 %
TLP 15.2 % 23.3 % 25.7 % 28.1 % 20.8 %
IBL 51.9 % (100.0 %) 300.0 % 1,554.4 % (34.6 %)
TLP (exclusive of IBL) 14.3 % 27.1 % 25.1 % 27.5 % 21.1 %
TLP, net (exclusive of IBL) 14.4 % 27.7 % 25.5 % 28.6 % 19.7 %
NPL 9.0 % 7.7 % 16.8 % 1.7 % 25.1 %
LLR 11.0 % 8.5 % 10.3 % (3.7 %) 75.3 %
ROPA, gross (25.3 %) 7.8 % 16.4 % 9.0 % 0.5 %
Allowance for ROPA (29.7 %) 69.6 % 31.5 % 42.1 % 21.8 %
RL, gross (12.6 %) (27.3 %) 47.5 % 32.4 % (7.5 %)
RL, current (36.5 %) (53.2 %) (21.4 %) (20.4 %) (93.4 %)
2/ 3.4 % 7.7 % 16.8 % 2.5 % 22.3 %
NPAs
Allowance for Probable Losses on NPAs 9.6 % 9.8 % 11.0 % (2.5 %) 73.3 %
Selected Ratios
RL to TLP 0.3 % 0.2 % 0.2 % 0.2 % 0.2 %
LLR to TLP 3.1 % 2.7 % 2.4 % 2.6 % 3.8 %
NPL Ratio (inclusive of IBL) 4.5 % 3.9 % 3.6 % 3.8 % 3.9 %
NPL Ratio (exclusive of IBL) 4.6 % 3.9 % 3.6 % 3.8 % 3.9 %
3/ 68.9 % 69.4 % 65.5 % 68.9 % 96.6 %
NPL Coverage
NPA to Gross Assets 2.6 % 2.6 % 2.6 % 2.6 % 2.9 %
NPA Coverage 4/ 62.1 % 63.3 % 60.2 % 63.3 % 89.7 %
1/ Gross Assets refer to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPA
2/ NPA refers to NPLs plus ROPA, gross excluding performing sales
contracts
3/ NPL receivable
Coverage refers per BSPratio
to the Circular No.
of LLR to380
NPLdated 28 March
4/ NPA Coverage refers to the ratio of valuation reserves (for Loans and ROPA) to NPAs

17 71 17
First Semester 2018
Appendix 21. Non-Stock Savings and Loans Associations (NSSLAs)

Financial Highlights
Levels (P Billion) 2015 2016 2017 2017 2018
Income Statement
Extraordinary Credits/(Charges) (1.4) (1.4) (0.8) (0.6) (0.8)
Provisions for Income Tax
Balance Sheet
Total Assets 166.1 180.1 193.5 173.4 210.4
Cash and Due from Banks 28.0 28.3 23.5 20.7 14.7
Loans, gross (exclusive of IBL) 126.0 137.9 153.2 139.3 188.8
Loans, net (exclusive of IBL) 113.0 121.9 134.9 123.3 169.5
Investment, net 14.4 18.8 23.4 21.9 18.3
ROPA, net 0.2 0.1 0.1 0.1 0.1
Other Assets 10.5 10.9 11.7 7.4 7.9
Total Liabilities 43.7 49.3 55.1 48.4 70.1
Deposits 33.6 38.4 43.0 38.6 46.0
Bills Payable 3.9 4.0 5.0 3.8 17.6
0.0 Less than P50 million


72
Appendix
Appendix 22. Non-Stock Savings and Loan Associations (NSSLAs)

Selected Performance Indicators correct
2015 2016 2017 2017 2018
Growth Rates
Income Statement
Total Operating Income 2.5 % 2.9 % 6.0 % (0.7 %) 27.4 %
Non-interest Income (15.4 %) (2.2 %) (8.6 %) (15.4 %) 18.8 %
Operating Expenses (13.9 %) 8.2 % 2.1 % (3.6 %) 23.7 %
Bad Debts/Provisions for Probable Losses (43.0 %) (15.6 %) 20.6 % 20.1 % 34.5 %
Other Operating Expenses 9.6 % 18.1 % (3.4 %) (9.7 %) 20.0 %
Net Operating Income 9.0 % 1.3 % 7.3 % 0.3 % 28.6 %
Extraordinary Credits/(Charges) 9.2 % 1.7 % (42.8 %) (17.8 %) 34.5 %
Net Income Before Tax 8.9 % 1.2 % 11.8 % 2.0 % 28.1 %
Provisions for Income Tax - - - - - -
Net Income After Tax (NIAT) 8.8 % 1.2 % 11.8 % 1.9 % 28.1 %
Balance Sheet
Total Assets 9.3 % 8.4 % 7.4 % 2.6 % 21.3 %
Cash and Due from Banks 35.6 % 1.2 % (16.9 %) (18.7 %) (29.0 %)
Interbank Loans Receivable (IBL)
Loans, gross 4.9 % 9.5 % 11.1 % 4.8 % 35.5 %
Allowance for Probable Losses 3.3 % 23.3 % 14.4 % 9.7 % 20.1 %
Loans, net 5.1 % 7.9 % 10.6 % 4.2 % 37.5 %
Investments, net 8.1 % 30.9 % 24.0 % 18.3 % (16.3 %)
ROPA, net 15.7 % (52.7 %) (34.0 %) (31.1 %) (34.6 %)
Other Assets 2.2 % 3.8 % 7.1 % 12.9 % 5.5 %
Total Liabilities 17.6 % 13.0 % 11.8 % 7.1 % 44.8 %
Deposits 13.9 % 14.3 % 11.9 % 5.5 % 19.2 %
Bills Payable 44.0 % 3.0 % 24.7 % 8.2 % 360.6 %
Other Liabilities 25.4 % 11.8 % 3.3 % 17.9 % 8.4 %
Total Capital Accounts 6.6 % 6.8 % 5.8 % 1.0 % 12.3 %
Selected Ratios
Profitability
Cost-to-Income 1/ 16.8 % 19.3 % 17.6 % 18.4 % 17.1 %
Return on Equity (ROE) 12.9% 12.2% 13.2% 12.6% 14.8%
Liquidity
Cash and Due from Banks to Deposits 83.2 % 73.7 % 54.7 % 53.5 % 31.9 %
Liquid Assets to Deposits 2/ 126.1 % 122.7 % 109.0 % 110.2 % 71.7 %
Loans, gross to Deposits 374.9 % 358.9 % 356.2 % 360.7 % 409.9 %
Asset Quality
Non-performing Loans (NPL) 9.9 % 10.2 % 9.8 % 9.6 % 8.3 %
NPL Coverage 103.7 % 113.1 % 122.0 % 119.8 % 122.6 %
Non-performing Assets (NPA) to Gross Assets 7.1 % 7.3 % 7.1 % 7.1 % 6.9 %
NPA Coverage 102.0 % 112.3 % 121.4 % 119.1 % 122.2 %
Capital Adequacy
Paid-in Capital to Total Capital Accounts 80.0 % 79.6 % 78.9 % 81.4 % 80.6 %
Business Mix
Total Investments (gross) to Total Assets 8.7 % 10.5 % 12.1 % 12.6 % 8.7 %
Total Loans (gross) to Total Assets 75.8 % 76.6 % 79.2 % 80.4 % 89.7 %
2/ Liquid Assets refers to Cash and Due from Banks plus Investments,net (less equity investments,net)

37 73 37
First Semester 2018

Profitability Indicators
Levels (P Billion) 2015 2016 2017 2017 2018

Interest Income 20.6 21.4 23.2 10.7 13.9
Fee-based Income 2.4 2.2 1.9 0.9 1.0
Trading Income 0.0 0.0 0.0 0.0 0.0
Trust department income 0.0 0.0 0.0 0.0 0.0
Other Income 0.7 0.8 0.9 0.4 0.5
Extraordinary Credits/(Charges) (1.4) (1.4) (0.8) (0.6) (0.8)
Growth Rates
Total Operating Income 2.5 % 2.9 % 6.0 % (0.7 %) 27.4 %
Interest Income 7.2 % 3.9 % 8.4 % 2.0 % 29.1 %
Interest Expenses 22.5 % 6.3 % 10.1 % 6.2 % (100.0 %)
Non-interest Income (15.4 %) (2.2 %) (8.6 %) (15.4 %) 18.8 %
Fee-based Income (22.9 %) (4.5 %) (16.9 %) (20.1 %) 13.5 %
Trading Income - - - - -
Trust department income - - - - -
Other Income 24.0 % 5.1 % 16.2 % (1.7 %) 31.3 %
Operating Expenses (13.9 %) 8.2 % 2.1 % (3.6 %) 23.7 %
Bad Debts/Provisions for Probable Losses (43.0 %) (15.6 %) 20.6 % 20.1 % 34.5 %
Other Operating Expenses 9.6 % 18.1 % (3.4 %) (9.7 %) 20.0 %
Net Operating Income 9.0 % 1.3 % 7.3 % 0.3 % 28.6 %
Extraordinary Credits/(Charges) 9.2 % 1.7 % (42.8 %) (17.8 %) 34.5 %
Net Income Before Tax 8.9 % 1.2 % 11.8 % 2.0 % 28.1 %
Provisions for Income Tax - - - - -
Net Income After Tax (NIAT) 8.8 % 1.2 % 11.8 % 1.9 % 28.1 %
Selected Ratios
Cost-to-Income 1/ 16.8 % 19.3 % 17.6 % 18.4% 17.1%
2/ 9.6 % 8.9 % 9.5 % 9.2 % 10.2 %
Return on Assets (ROA)
2/ 12.9 % 12.2 % 13.2 % 12.6 % 14.8 %
Return on Equity (ROE)
2/ ROA and ROE refer to the ratio of annualized NIAT to average assets and capital, respectively.
0.0 Less than P50 million

74
Appendix

Asset Quality Indicators
Levels (P Billion) 2015 2016 2017 2017 2018
Total Assets 166.1 180.1 193.5 173.4 210.4

1/ 179.1 196.1 211.8 189.4 229.7
Gross Assets
Total Loan Portfolio (TLP) 126.0 137.9 153.2 139.3 188.8
TLP, exclusive of IBL 126.0 137.9 153.2 139.3 188.8
TLP, net (exclusive of IBL) 113.0 121.9 134.9 123.3 169.5
Non-performing Loans (NPL) 12.5 14.1 15.0 13.4 15.7
Loan Loss Reserves (LLR) 13.0 16.0 18.3 16.0 19.2
ROPA, gross 0.2 0.1 0.1 0.1 0.1
2/ 12.7 14.2 15.1 13.5 15.7
Non-Performing Assets (NPAs)
Allowance for Probable Losses on NPAs 13.0 16.0 18.3 16.0 19.2
Growth Rates
Total Assets 9.3 % 8.4 % 7.4 % 2.6 % 21.3 %
1/ 8.8 % 9.5 % 8.0 % 3.2 % 21.2 %
Gross Assets
TLP 4.9 % 9.5 % 11.1 % 4.8 % 35.5 %
TLP (exclusive of IBL) 4.9 % 9.5 % 11.1 % 4.8 % 35.5 %
TLP, net (exclusive of IBL) 5.1 % 7.9 % 10.6 % 4.2 % 37.5 %
NPL (5.2 %) 13.1 % 6.1 % 3.7 % 17.3 %
LLR 3.3 % 23.3 % 14.4 % 9.7 % 20.1 %
ROPA, gross 15.7 % (52.7 %) (34.0 %) (31.1 %) (34.6 %)
2/ (4.9 %) 12.0 % 5.8 % 3.4 % 17.0 %
NPAs
Allowance for Probable Losses on NPAs 3.3 % 23.3 % 14.4 % 9.7 % 20.1 %
Selected Ratios
LLR to TLP 10.3 % 11.6 % 11.9 % 11.5 % 10.2 %
NPL Ratio (inclusive of IBL) 9.9 % 10.2 % 9.8 % 9.6 % 8.3 %
NPL Ratio (exclusive of IBL) 9.9 % 10.2 % 9.8 % 9.6 % 8.3 %
NPL Coverage 3/ 103.7 % 113.1 % 122.0 % 119.8 % 122.6 %
NPA to Gross Assets 7.1 % 7.3 % 7.1 % 7.1 % 6.9 %
4/ 102.0 % 112.3 % 121.4 % 119.1 % 122.2 %
NPA Coverage
1/ Gross Assets refer to Total Assets, net of reserves plus Loan Loss Reserves (LLR) plus provision for ROPA
2/ NPA refers to NPLs plus ROPA, gross
3/ NPL Coverage refers to the ratio of LLR to NPL
4/ NPA Coverage refers to the ratio of LLR (for Loans and ROPA) to NPAs
… less than P 50 million

57 75 57
First Semester 2018
Appendix 25
PHYSICAL COMPOSITION
Financial Institutions Under BSP Supervision/Regulation
As of Semesters-Ended Indicated
JUNE 2017 DECEMBER 2017 JUNE 2018

TYPE OF FINANCIAL INSTITUTIONS (FIs) HEAD OTHER HEAD OTHER HEAD OTHER
TOTAL TOTAL TOTAL
OFFICE OFFICES OFFICE OFFICES OFFICE OFFICES
BSP SUPERVISED/REGULATED FIs 1/ 28,450 6,120 22,330 28,806 6,083 22,723 20,832 1,338 19,473
I. BANKS 2/ 11,392 593 10,799 11,793 587 11,206 12,066 581 11,485
A. Universal and Commercial Banks 6,331 42 6,289 6,483 43 6,440 6,569 43 6,526
Universal Banks 5,796 21 5,775 5,935 21 5,914 6,014 21 5,993
PrivateBanks
Domestic Domestic Banks 5,207 12 5,195 5,331 12 5,319 5,405 12 5,393
Government Banks 577 3 574 592 3 589 597 3 594
Branches
Branches of Foreign
of Foreign Banks
Banks 12 6 6 12 6 6 12 6 6
Commercial Banks 535 21 514 548 22 526 555 22 533

Private Domestic
Domestic Banks Banks 411 5 406 423 5 418 431 5 426
Subsidiaries of Foreign Banks 105 2 103 105 2 103 105 2 103
Branches
Branches of Foreign
of Foreign Banks
Banks 19 14 5 20 15 5 19 15 4
B. Thrift Banks 2,246 58 2,188 2,417 55 2,362 2,525 55 2,470
Financial Institution-Linked Banks 1,026 13 1,013 1,144 13 1,131 1,216 14 1,202

Domestic Bank-Controlled 996 10 986 1,110 10 1,100 1,181 11 1,170
Foreign Bank-Controlled 30 3 27 34 3 31 35 3 32
Domestic NBFI-Controlled - -
Foreign NBFI-Controlled - -
Non-Linked 1,220 45 1,175 1,273 42 1,231 1,309 41 1,268
C. Rural and Cooperative Banks 2,815 493 2,322 2,893 489 2,404 2,972 483 2,489
Rural Banks 2,093 458 1,635 2,099 455 1,644 2,133 449 1,684
Microfinance-oriented Rural Banks 574 9 565 643 9 634 683 9 674
Cooperative Banks 148 26 122 151 25 126 156 25 131
II. NON-BANK FINANCIAL INSTITUTIONS (NBFIs) 17,055 5,524 11,531 17,010 5,493 11,517 8,764 755 7,988
A. With Quasi-Banking Function 111 9 102 120 9 111 120 9 111

Investment Houses 4 3 1 4 3 1 4 3 1
Financing Companies 106 5 101 115 5 110 115 5 110
Other Non-Bank with QBF Function 1 1 1 1 1 1
3/
B. Without Quasi-Banking Functions 16,944 5,515 11,429 16,890 5,484 11,406 8,644 767 7,877
AAB - Forex Corporation 5 5 5 5 5 5
Credit Card Companies 4 4 4 4 4 4
Credit Granting Entities 9 9 9 9 9 9
Electronic Money Issuer - Others 5 5 5 5 8 8
Financing Companies 47 18 29 46 17 29 48 18 30
Government Non-Bank Financial Institutions 2 2 2 2 2 2
Investment Companies 1 1 1 1 1 1
Investment Houses 21 12 9 21 12 9 20 11 9
Lending Investors 1 1 1 1 1 1
Non-Stock Savings & Loan Associations 197 65 132 197 65 132 198 64 134
Pawnshops 16,637 5,378 11,259 16,582 5,346 11,236 8,331 627 7,704
Remittance Agent (Subsidiary of a Bank) 1 1 1 1 1 1
Securities Dealers/Brokers 12 12 13 13 13 13
Trust Corporation 2 2 3 3 3 3
III. OFFSHORE BANKING UNITS (OBUs) 3 3 3 3 2 2
1/ Excludes Foreign Banks' Representative Offices (ROs) in the Philippines
2/ Includes ROs abroad of domestic banks

3/ Except for pawnshops, one government non-bank financial institution and non-stock savings and loan associations, all NBFIs without quasi-banking functions include
subsidiaries/affiliates of banks/quasi-banks pursuant to Section 130 of R.A. No. 7653 and non-subsidiary/affiliate investment houses with trust/IMA licenses.
Source : Supervisory Data Center, Supervision and Examination Sector

76
Appendix 26
COMPARATIVE STATEMENT OF CONDITION
PHILIPPINE BANKING SYSTEM
As of Periods-Ended Indicated
(Amounts in Billion Pesos)
1/ 1/ 2/
ALL BANKS UNIVERSAL & COMMERCIAL BANKS THRIFT BANKS RURAL AND COOPERATIVE BANKS
Selected Accounts p/
End-Jun '17 * End-Dec '17 End-Jun '18 End-Jun '17 End-Dec '17 End-Jun '18 End-Jun '17 End-Dec '17 End-Jun '18 End-Mar '17 End-Dec '17 End-Mar '18
ASSETS 14,236.378 15,166.160 15,704.385 12,881.521 13,763.279 14,280.639 1,136.979 1,168.195 1,187.764 217.878 234.687 235.981
Cash and Due from Banks 2,753.869 2,713.487 2,407.853 2,511.197 2,509.814 2,213.367 188.000 150.062 138.173 54.673 53.612 56.314
Financial Assets (net) 2,792.276 2,881.171 3,200.830 2,663.048 2,737.333 3,057.270 108.958 116.166 114.416 20.270 27.673 29.144
3/
Loan Portfolio (net) 7,842.478 8,681.350 9,152.979 6,950.455 7,721.243 8,172.515 774.366 833.375 857.390 117.657 126.732 123.074
Equity Investments (net) 247.930 253.875 278.079 245.374 251.206 268.181 2.318 2.363 9.580 0.238 0.307 0.318
ROPA (net) 88.292 92.343 95.996 59.301 62.473 65.549 19.256 19.936 20.577 9.734 9.934 9.871
Other Assets 511.533 543.933 568.648 452.147 481.210 503.758 44.081 46.294 47.629 15.306 16.429 17.261
LIABILITIES AND CAPITAL 14,236.378 15,166.159 15,704.383 12,881.521 13,763.279 14,280.639 1,136.979 1,168.195 1,187.764 217.877 234.685 235.980
Liabilities 12,544.499 13,409.368 13,765.031 11,372.041 12,198.058 12,541.301 995.652 1,021.582 1,034.066 176.806 189.727 189.664
Financial Liabilities Held for Trading 29.673 32.537 44.531 29.647 32.537 44.488 0.027 - 0.042 - - -
Financial Liabilities DFVPL - - - - - - - - - - - -
Deposit Liabilities 11,013.141 11,726.967 12,149.438 9,922.699 10,614.366 11,018.885 934.209 945.431 963.758 156.233 167.170 166.795
Residents 10,902.787 11,616.612 12,036.438 9,816.832 10,508.558 10,909.960 929.727 941.004 959.689 156.228 167.050 166.789
Peso Liabilities 9,075.024 9,698.463 10,057.419 8,044.381 8,649.150 8,990.731 874.534 882.397 900.038 156.108 166.915 166.650
Demand and NOW 2,450.653 2,618.530 2,789.910 2,363.742 2,526.165 2,692.162 82.834 87.984 93.377 4.077 4.380 4.371
Savings 4,337.625 4,596.162 4,715.932 3,975.201 4,216.911 4,324.949 250.565 258.069 267.417 111.860 121.183 123.565
Time 2,138.622 2,289.729 2,342.842 1,560.691 1,715.407 1,768.259 537.761 532.970 535.869 40.171 41.352 38.714
LTNCD 148.123 194.042 208.736 144.748 190.667 205.361 3.375 3.375 3.375 0.001 - -
Foreign Currency 1,827.763 1,918.149 1,979.018 1,772.451 1,859.408 1,919.229 55.192 58.607 59.651 0.120 0.135 0.139
Demand and NOW 52.614 57.632 57.858 52.518 57.563 57.803 0.096 0.069 0.055 - - -
Savings 907.149 911.016 962.210 883.272 885.877 935.751 23.777 25.023 26.340 0.100 0.116 0.119
Time 868.000 949.501 958.950 836.661 915.968 925.674 31.319 33.514 33.256 0.019 0.019 0.020
LTNCD - - - - - - - - - - - -
Non-Residents 110.354 110.355 113.000 105.867 105.808 108.925 4.482 4.427 4.070 0.005 0.120 0.005
Peso Liabilities 43.375 54.566 49.217 40.389 51.478 46.560 2.981 2.968 2.652 0.005 0.120 0.005
Demand and NOW 19.412 19.461 17.765 19.024 19.148 17.492 0.388 0.313 0.273 - - -
Savings 21.183 30.123 26.076 18.753 27.631 23.952 2.425 2.372 2.118 0.005 0.120 0.005
Time 2.780 4.983 5.377 2.613 4.699 5.116 0.167 0.284 0.261 0.000 0.000 0.000
LTNCD - - - - - - - - - - - -
Foreign Currency 66.979 55.788 63.783 65.478 54.330 62.366 1.501 1.458 1.418 - - -
Demand and NOW 12.431 3.994 3.581 12.423 3.986 3.574 0.008 0.008 0.007 - - -
Savings 36.999 31.305 32.506 35.539 29.884 31.123 1.459 1.420 1.382 - - -
Time 17.549 20.490 27.696 17.516 20.459 27.668 0.033 0.030 0.028 - - -
LTNCD - - - - - - - - - - - -
Bills Payable 720.685 787.239 661.024 688.743 741.176 619.952 20.423 32.963 29.349 11.519 13.100 11.723
BSP 4.425 32.462 18.093 4.331 31.506 18.072 0.064 0.940 0.000 0.030 0.016 0.022
Interbank Loans Payable 289.026 342.091 255.395 269.925 309.175 228.408 13.314 25.482 19.854 5.787 7.434 7.133
Other Deposits Substitutes 332.963 301.036 270.872 330.311 298.614 268.981 2.653 2.422 1.891 - - -
Others 94.271 111.649 116.664 84.176 101.880 104.492 4.393 4.118 7.604 5.702 5.651 4.569
Unsecured Subordinated Debt 84.449 86.984 86.924 79.457 81.480 81.518 3.628 4.129 4.030 1.364 1.376 1.376
Redeemable Preferred Shares 0.912 0.888 0.878 0.000 0.000 0.000 0.764 0.764 0.764 0.147 0.124 0.114
Other Liabilities 695.639 774.753 822.235 651.494 728.499 776.457 36.602 38.296 36.123 7.543 7.958 9.656
Capital Accounts 1,691.879 1,756.791 1,939.352 1,509.481 1,565.221 1,739.338 141.327 146.612 153.697 41.071 44.958 46.317
Capital Stock 801.993 810.546 936.825 707.227 708.886 832.769 67.587 71.426 72.643 27.178 30.235 31.413
Assigned Capital 87.825 89.925 101.906 87.825 89.925 101.906 - - - - - -
Net Due to HO, Br & Ags / Accum Earnings 45.936 45.765 47.149 45.936 45.765 47.149 - - - - - -
Other Equity Instruments 4/ 16.168 13.652 13.245 12.000 12.000 12.000 3.030 0.451 0.344 1.139 1.201 0.901
5/
Retained Earnings & Undivided Profits 739.956 796.903 840.227 656.492 708.644 745.514 70.711 74.736 80.711 12.754 13.523 14.002
1/ Total assets adjusted to net off the account "Due From Head Office" with "Due to Head Office" of branches of foreign banks
2/ Inclusive of branches of foreign banks with universal banking license, other foreign bank branches and subsidiaries, and 3 government banks: Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), and Al Amanah Islamic Bank
3/ Inclusive of Interbank Loans Receivable
4/ Inclusive of Deposits for Stock Subscription
5/ Inclusive of Other Comprehensive Income and Appraisal Increment Reserve
Note: “0.000” denotes a value below 0.0005
Source : Supervisory Data Center
Appendix
77 77 77
First Semester 2018
78
78
Appendix 27
COMPARATIVE STATEMENT OF INCOME AND EXPENSES
For the Period-Ended Indicated
1/
Selected Accounts p/
Jan-Jun '17 * Jan-Dec '17 Jan-Jun '18 Jan-Jun '17 Jan-Dec '17 Jan-Jun '18 Jan-Jun '17 Jan-Dec '17 Jan-Jun '18 Jan-Mar '17 Jan-Dec '17 Jan-Mar '18
Operating Income 273.647 590.778 317.252 232.103 491.227 273.626 35.147 72.798 37.229 6.396 26.753 6.397
Net Interest Income 208.950 447.400 238.511 176.189 369.383 202.492 28.181 58.866 31.002 4.579 19.151 5.016
Interest Income 268.523 574.657 319.877 225.932 474.585 272.132 37.085 77.176 41.791 5.506 22.895 5.954
Provision for Losses on Accrued
0.310 0.375 1.056 0.192 0.261 0.822 0.118 0.100 0.230 0.000 0.014 0.003
Interest
Less: Interest Expenses 59.264 126.882 80.311 49.551 104.940 68.817 8.786 18.211 10.559 0.927 3.731 0.935
Non-interest Income 64.698 143.379 78.742 55.915 121.844 71.134 6.966 13.932 6.227 1.817 7.603 1.380
Dividend Income 1.566 3.325 1.361 1.548 3.302 1.354 0.018 0.022 0.008 0.000 0.000 0.000
Fee-based Income 40.058 84.771 42.549 34.258 71.346 37.888 4.622 8.897 4.001 1.178 4.528 0.661
Trading Income/(Loss) 4.506 11.062 9.070 4.398 10.870 9.113 0.108 0.192 (0.043) 0.001 - 0.000
Foreign Exchange Income/(Loss) 3.745 7.164 2.942 3.665 7.038 2.784 0.079 0.124 0.156 0.001 0.002 0.003
Other Income/(Loss) 14.823 37.057 22.818 12.045 29.288 19.996 2.140 4.697 2.106 0.637 3.071 0.716
Non-Interest Expenses 176.093 378.165 204.217 149.297 311.774 174.513 22.160 45.911 24.555 4.635 20.480 5.149
Losses/Recoveries on Financial Assets (13.827) (33.747) (15.598) (10.524) (27.603) (12.200) (3.102) (4.960) (2.871) (0.201) (1.184) (0.526)

Unconsolidated Subsidiaries, Associates and
Joint Ventures Accounted for Using the Equity 83.727 178.866 97.438 72.282 151.850 86.913 9.885 21.927 9.803 1.560 5.090 0.722
Method
Subsidiaries, Associates and Joint Ventures 14.100 27.906 9.931 13.943 27.424 9.756 0.157 0.394 0.175 - 0.087 -
Accounted for Using the Equity Method
Total Profit/Loss Before Tax and Before

97.827 206.772 107.369 86.225 179.274 96.668 10.042 22.321 9.978 1.560 5.178 0.722
Minority Interest
Income Tax Expense 16.574 38.703 21.378 14.383 32.944 19.304 1.868 4.382 1.952 0.322 1.378 0.122
Total Profit/Loss After Tax and Before
81.254 168.069 85.991 71.842 146.330 77.364 8.174 17.939 8.026 1.238 3.799 0.600
Minority Interest
Minority Interest in Profit/(Loss) of
- - - - - - - - - - - -
Subsidiaries
NET PROFIT/(LOSS) 81.254 168.069 85.991 71.842 146.330 77.364 8.174 17.939 8.026 1.238 3.799 0.600
Profitability
Return on Assets (%) 1.2 1.2 1.2 1.1 1.1 1.1 1.4 1.6 1.5 1.8 1.7 1.4
Return on Equity (%) 9.8 10.2 9.5 9.6 10.0 9.3 11.5 12.7 12.1 9.8 9.1 7.3
1/ Inclusive of branches of foreign banks with universal banking license, other foreign bank branches and subsidiaries, and 3 government banks: Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), and Al Amanah Islamic Bank
* Data for R/CBs for Jan-Mar '17
p/ Preliminary; Data for R/CBs Jan-Mar '18

Appendix 28
Selected Performance Indicators
As of Periods-Ended Indicated
(Ratios in Percent)
Selected Ratios End-Jun '17 * End-Dec '17 End-Jun '18 p/ End-Jun '17 End-Dec '17 End-Jun '18 End-Jun '17 End-Dec '17 End-Jun '18 End-Mar '17 a/ End-Dec '17 End-Mar '18 b/
Profitability
1/
Earning Asset Yield 4.2% 4.3% 4.5% 3.8% 3.9% 4.1% 7.3% 7.2% 7.4% 11.3% 11.4% 11.3%
2/
Funding Cost 1.0% 1.1% 1.2% 0.9% 1.0% 1.1% 1.9% 1.9% 2.0% 2.3% 4.3% 2.1%
3/
Interest Spread 3.2% 3.2% 3.3% 2.9% 2.9% 3.0% 5.3% 5.3% 5.4% 9.0% 7.2% 9.1%
4/
Net Interest Margin 3.3% 3.3% 3.4% 3.0% 3.0% 3.1% 5.5% 5.5% 5.6% 9.3% 9.6% 9.4%
5/
Non-Interest Income to Total Operating Income 25.5% 24.3% 24.8% 26.1% 24.8% 25.7% 19.9% 19.1% 17.6% 29.0% 28.4% 26.8%
6/
Cost-to-Income 64.2% 63.8% 63.8% 63.8% 63.3% 63.1% 63.4% 62.7% 64.1% 75.3% 76.4% 78.3%
7/
Return on Assets (ROA) 1.2% 1.2% 1.2% 1.1% 1.1% 1.1% 1.4% 1.6% 1.5% 1.8% 1.7% 1.4%
Return on Equity (ROE) 7/ 9.8% 10.2% 9.5% 9.6% 10.0% 9.3% 11.5% 12.7% 12.1% 9.8% 9.1% 7.3%
Liquidity
Cash and Due from Banks to Deposits 25.0% 23.1% 19.8% 25.3% 23.6% 20.1% 20.1% 15.9% 14.3% 35.0% 32.1% 33.8%
Liquid Assets to Deposits 8/ 50.4% 47.7% 46.2% 52.1% 49.4% 47.8% 31.8% 28.2% 26.2% 48.0% 48.6% 51.2%
Loans, gross to Deposits 72.8% 75.6% 77.0% 71.4% 74.1% 75.6% 85.9% 91.0% 91.9% 82.1% 82.7% 81.1%
Asset Quality 9/
Restructured Loans to Total Loan Portfolio (TLP) 0.5% 0.5% 0.5% 0.4% 0.5% 0.5% 0.6% 0.7% 0.5% 1.8% 1.5% 1.6%
Allowance for Credit Losses (ACL) to TLP 2.2% 2.1% 2.1% 2.0% 1.9% 1.9% 3.5% 3.1% 3.2% 8.3% 8.3% 9.0%
Gross Non-Performing Loans (NPL) to TLP 1.9% 1.7% 1.9% 1.4% 1.2% 1.3% 5.0% 4.7% 5.3% 11.2% 10.9% 12.4%
Net NPL to TLP 0.7% 0.6% 0.9% 0.4% 0.3% 0.5% 2.6% 2.5% 3.5% 3.9% 3.6% 5.4%
NPL Ratio net of IBL 2.0% 1.8% 1.9% 1.5% 1.3% 1.4% 5.0% 4.7% 5.3% 11.2% 10.9% 12.4%
NPL Coverage (ACL to Gross NPL) 114.2% 120.4% 114.4% 137.9% 149.5% 143.6% 69.1% 66.6% 60.0% 74.1% 76.5% 72.8%
Non-Performing Assets (NPA) to Gross Assets 1.8% 1.7% 1.8% 1.4% 1.3% 1.3% 5.2% 5.2% 5.7% 10.6% 10.1% 10.6%
NPA Coverage (Allowance on NPA to NPA) 79.6% 81.6% 80.9% 92.8% 97.0% 97.7% 53.3% 50.7% 47.4% 48.8% 50.6% 50.5%
ROPA to Gross Assets Ratio 0.7% 0.7% 0.7% 0.6% 0.6% 0.5% 1.8% 1.8% 1.9% 4.3% 4.0% 3.9%
ROPA Coverage Ratio 29.2% 26.9% 27.0% 33.2% 30.5% 30.6% 22.9% 21.6% 21.6% 11.9% 11.4% 11.9%
Distressed Assets
Capital Adequacy
Total Capital Accounts to Total Assets 10/ 11.9% 11.6% 12.4% 11.7% 11.4% 12.2% 12.5% 12.6% 13.0% 18.9% 19.2% 19.7%
Capital Adequacy Ratio (Solo) 11/ 12/ 15.5% 14.7% 15.3% 15.3% 14.4% 15.2% 16.9% 16.5% 15.8% 18.3% 18.9% 19.6%
1/ Earning Asset Yield refers to the ratio of interest income to average earning assets.
2/ Funding Cost refers to the ratio of interest expenses to average interest-bearing liabilities.
3/ Interest Spread refers to the difference between earning asset yield and funding cost.
4/ Net Interest Margin refers to the ratio of net interest income to average earning assets.
5/ Non-Interest income includes dividends income.
6/ Cost-to-Income Ratio refers to the ratio of non-interest expenses to total operating income.
7/ ROA and ROE refer to the ratios of net profit to average assets and capital, respectively.
8/ Liquid Assets refer to Cash and Due from Banks plus Financial Assets, net of amortization (net of financial assets in equity securities).
9/ Ratios are computed in accordance with the NPL definition as prescribed under BSP Circular No. 772 dated 16 October 2012 effective 01 January 2013.
10/ Total capital accounts includes redeemable preferred shares.
11/ Refers to the ratio of qualifying capital to total risk-weighted assets. With the implementation of the reforms under the Basel III framework, the BSP issued Circular No. 781 dated 13 January 2013 providing the new computation of qualifying capital under the Basel III standards. While the three major risks (credit, market and operational risks) are still
covered by the calculation of risk-based capital, the qualifying capital was strengthened through the eligibility criteria for recognition as capital including the required loss absorbency features of capital instruments.
12/ CAR for Universal and Commercial Banks and their subsidiary banks and quasi-banks based on Basel III risk-based capital adequacy framework; CAR for Stand-alone Thrift, Rural and Cooperative Banks based on Basel 1.5 framework.
* Balance Sheet and Income Statement data for R/CBs as of end-March 2017.
p/ Preliminary; Data for R/CBs as of end-March 2018.
a/ CAR data of R/CBs as of end-June 2017.
b/ CAR data of R/CBs as of end-June 2018.
Appendix
97 79 97
First Semester 2018
80
80
Appendix 29. Philippine Banking System: Financial Soundness Indicators
As of End-Periods Indicated, Ratios in Percent (%)
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
Capital adequacy
Regulatory capital to risk-weighted assets
Regulatory Tier 1 capital to risk-weighted assets
Nonperforming loans net of provision to capital1/
Capital to assets 11.9 10.7 11.1 10.6 11.0 11.3 11.4 11.1 11.3 11.6 12.4 11.7 12.0 12.0 12.3 12.6
Asset quality
Nonperforming loans to total gross loans 5.0 4.5 4.5 4.1 4.2 4.0 4.0 3.6 3.9 3.9 3.9 3.6 3.6 3.1 3.1 2.8
Sectoral distribution of loans to total loans
Residents
Banks
BSP
Government
Other financial corporation
Nonfinancial corporation
Agra-agri
MSMEs
Households
Nonresidents
Earnings and profitability
Return on assets 1.2 1.1 1.0 0.8 0.8 0.9 1.1 1.2 1.2 1.3 1.4 1.4 1.5 1.5 1.5 1.5
Return on equity 10.1 9.6 8.7 6.9 6.9 8.1 9.4 10.8 11.2 11.2 11.9 12.4 12.5 13.0 12.2 12.1
Interest margin to gross income2/ 60.8 62.4 64.1 68.4 69.7 69.7 67.9 66.4 65.5 65.5 62.9 62.8 63.3 62.3 64.5 64.2
Noninterest expenses to gross income3/ 67.7 70.3 72.6 74.0 72.9 71.0 66.8 65.8 64.8 64.2 63.8 63.5 63.4 63.2 64.1 65.0
Liquidity
Liquid assets to total assets (liquid asset ratio) 37.7 36.3 37.3 37.9 37.8 38.4 39.7 38.9 41.8 40.6 41.6 43.3 43.4 41.1 41.6 40.6
Liquid assets to short-term liabilities 54.6 51.9 52.0 52.5 51.6 52.5 54.3 52.7 57.3 55.0 57.2 59.7 60.2 57.0 58.8 56.5
Deposits to total (noninterbank) loans4/ 163.2 159.5 161.4 157.5 160.8 163.4 170.4 166.5 174.8 170.7 168.3 168.1 165.3 155.9 153.2 150.6
Sensitivity to market risk
Net open position in foreign exchange to capital5/ -1.0 1.1 0.0 -0.4
Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
Capital adequacy
Regulatory capital to risk-weighted assets 16.3 16.7 17.0 16.2 16.1 16.4 16.4 15.8
Regulatory Tier 1 capital to risk-weighted assets 14.6 14.7 14.7 13.8 13.7 14.1 14.1 13.5
Nonperforming loans net of provision to capital1/ 0.9 0.8 0.8 0.6 0.6 0.7 0.6 0.6 0.7 0.6 0.6 0.6
Capital to assets 13.1 12.8 13.5 13.1 14.4 13.0 12.4 11.3 11.6 11.7 11.9 12.2 12.4 12.8 12.8 11.6
Asset quality
Nonperforming loans to total gross loans 3.0 2.6 2.7 2.5 3.4 3.3 3.2 2.8 2.8 2.7 2.6 2.3 2.5 2.4 2.3 2.1
Residents 97.1 97.0 96.6 97.0 96.9 96.8 97.0 97.2
Banks 3.6 3.9 3.5 4.4 3.2 2.9 2.9 3.8
BSP 5.9 5.7 5.5 5.2 5.3 5.2 5.4 4.8
Government 4.4 4.3 4.1 3.9 4.0 4.1 4.0 3.7
Other financial corporation 6.4 6.5 6.7 6.6 6.8 6.6 7.0 6.6
Nonfinancial corporation 44.0 44.2 44.8 45.0 44.8 44.8 45.0 46.0
Agra-agri 6.7 6.5 6.4 6.3 6.4 6.5 6.1 6.0
MSMEs 7.5 7.3 7.1 7.3 7.2 7.1 7.1 7.1
Households 18.6 18.7 18.5 18.3 19.2 19.6 19.7 19.4
Nonresidents 2.9 3.0 3.4 3.0 3.1 3.2 3.0 2.8
Return on assets 1.6 1.6 1.6 1.6 2.0 2.0 1.9 1.6 1.2 1.2 1.2 1.3 1.3 1.3 1.2 1.2
Return on equity 13.0 12.7 12.2 12.4 14.3 15.4 14.7 13.3 9.7 9.5 9.7 10.9 11.1 10.7 10.1 9.8
Interest margin to gross income2/ 62.0 62.7 62.0 61.7 56.8 56.2 58.0 61.1 69.2 71.3 70.9 68.8 68.1 68.5 70.1 72.8
Noninterest expenses to gross income3/ 64.0 64.6 64.8 63.5 59.4 58.7 58.7 60.3 64.7 65.0 64.6 62.4 62.1 62.3 63.1 64.5
Liquidity
Liquid assets to total assets (liquid asset ratio) 39.8 38.8 39.9 40.3 40.5 41.8 43.3 44.5 44.0 43.0 41.9 41.8 41.8 41.6 41.7 40.3
Liquid assets to short-term liabilities 56.4 54.7 57.4 57.5 58.8 58.0 58.8 59.5 58.6 57.1 55.5 55.7 55.3 55.0 55.7 53.6
Deposits to total (noninterbank) loans4/ 146.1 143.5 141.8 142.8 141.0 150.6 157.0 161.5 159.9 157.6 153.3 152.6 152.8 150.6 149.6 146.2
Net open position in foreign exchange to capital5/ -0.8 0.5 0.6 0.3 -1.3 -0.4 0.0 0.1 0.6 1.0 0.8 0.6 -0.1 1.1 0.3 0.3
Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18
Capital adequacy
Regulatory capital to risk-weighted assets 15.8 16.1 16.1 15.1 15.8 16.0 15.7 15.0 15.1 15.8
Regulatory Tier 1 capital to risk-weighted assets 13.9 14.3 14.3 13.3 14.1 14.2 14.0 13.3 13.4 14.1
Nonperforming loans net of provision to capital1/ 0.8 0.8 0.7 0.6 0.6 0.7 0.9 0.8 0.9 0.9
Capital to assets 11.9 12.2 12.1 11.4 11.9 11.9 11.9 11.6 11.7 12.4
Asset quality
Nonperforming loans to total gross loans 2.2 2.2 2.1 1.9 2.0 1.9 1.9 1.7 1.8 1.9
Residents 97.2 97.2 97.1 97.1 95.8 96.0 96.2 96.5 95.9
Banks 3.3 3.4 3.4 4.5 3.0 3.4 3.6 3.5 3.1
BSP 4.7 4.4 4.3 4.0 3.2 3.8 3.5 3.4 3.4
Government 3.8 3.8 3.6 3.3 3.2 3.3 3.0 2.8 2.5
Other financial corporation 6.6 6.7 6.5 6.6 6.5 6.1 6.5 6.6 6.3
Nonfinancial corporation 46.0 46.4 46.6 46.7 47.5 47.3 47.9 48.6 48.7
Agra-agri 6.0 5.7 5.5 5.7 5.8 6.0 5.7 5.7 5.9
MSMEs 7.0 6.7 6.7 6.5 6.4 6.1 6.1 6.0 6.0
Households 19.9 20.0 20.4 19.8 20.1 20.0 19.8 19.8 20.1
Nonresidents 2.8 2.8 2.9 2.9 4.2 4.0 3.8 3.5 4.1
Return on assets 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2
Return on equity 9.7 9.8 10.0 10.5 10.0 9.8 9.8 10.2 10.1 9.5
Interest margin to gross income2/ 73.9 73.5 72.7 72.1 73.2 74.5 75.4 75.7 75.3 75.2
Noninterest expenses to gross income3/ 64.7 64.6 64.3 63.6 64.2 64.2 64.0 63.8 63.6 63.8
Liquidity
Liquid assets to total assets (liquid asset ratio) 40.9 40.2 39.6 38.6 39.0 38.4 37.4 36.4 36.1 35.2
Liquid assets to short-term liabilities 53.9 53.0 52.4 50.7 51.3 50.4 49.0 47.7 46.9 46.2
Deposits to total (noninterbank) loans4/ 149.0 146.4 144.4 143.0 142.3 141.4 139.2 136.1 136.5 133.9
Net open position in foreign exchange to capital5/ -0.1 0.2 0.2 0.2 0.5 0.6 0.2 0.4 1.1 0.8
--------------------------
1/
Net NPL ratio
2/
Net interest income to total operating income
3/
Cost to income ratio
4/
Liquid assets to deposits ratio (narrow proxy)
5/
Net FX position to qualifying capital (consolidated) Office of Supervisory Policy Development
Appendix 30
COMPARATIVE
CONTINGENT A STATEMENT
CCOUNTSOF CONDITION
HILIPPINE Financial
PPhilippine BANKINGInstitutions
SYSTEM (Banks and Non-banks)
As of
ofSemesters-Indicated
Semesters-Ended Indicated
(Amounts Billion
(Amounts inin Pesos)
Billion Pesos)
TOTAL UNIVERSAL and COMMERCIAL BANKS THRIFT BANKS

Selected Accounts
End-Jun '17 End-Dec '17 End-Jun-'18 End-Jun '17 End-Dec '17 End-Jun-'18 End-Jun '17 End-Dec '17 End-Jun-'18
TRADE-RELATED ACCOUNTS 122.520 165.148 176.695 121.844 164.595 175.716 0.676 0.553 0.979
Domestic Commercial Letters of Credit Outstanding 15.355 19.523 18.939 15.098 19.465 18.781 0.257 0.058 0.158
Foreign Commercial Letters of Credit Outstanding 75.931 101.940 120.370 75.514 101.450 119.550 0.417 0.489 0.820
LCs - Confirmed 6.198 8.289 12.034 6.198 8.289 12.034 - - -
Shipside Bonds/Airway Bills 25.036 35.397 25.352 25.035 35.391 25.351 0.001 0.006 0.001
BANK GUARANTEES 260.153 283.635 304.167 259.590 283.092 303.721 0.563 0.543 0.446
Stand-by Letters of Credit 230.667 244.011 261.715 230.111 243.480 261.281 0.556 0.530 0.434
Outstanding Guarantees Issued 29.486 39.625 42.452 29.480 39.612 42.441 0.007 0.013 0.012
COMMITMENTS 1,050.675 1,084.733 1,197.124 1,045.571 1,080.632 1,194.419 5.103 4.101 2.705
Underwritten Accounts Unsold - - - - - - - - -
Committed Credit Lines for CPs Issued 0.656 0.078 0.195 0.606 0.028 0.145 0.050 0.050 0.050
Credit Card Lines 615.009 696.587 795.445 613.394 695.075 793.736 1.615 1.512 1.709
Others 435.010 388.068 401.483 431.572 385.529 400.537 3.438 2.538 0.946
DERIVATIVES INSTRUMENTS * 2,834.723 2,974.223 3,225.170 2,830.926 2,970.516 3,221.978 3.797 3.707 3.192
Interest Rate Contracts 1,091.371 1,051.787 1,079.201 1,090.433 1,050.858 1,079.201 0.939 0.929 -
Foreign Exchange Contracts 1,738.302 1,919.662 2,144.390 1,735.444 1,916.884 2,141.198 2.859 2.778 3.192
Equity Contracts - - - - - - - - -
Credit Derivatives 5.050 2.774 1.579 5.050 2.774 1.579 - - -
TRUST DEPARTMENT ACCOUNTS 2,386.036 2,541.953 2,397.636 2,343.206 2,496.506 2,352.738 42.830 45.448 44.898
* Notional Amounts of Derivatives Held For Trading (Stand-Alone and Embedded)

Appendix
18 81 18
First Semester 2018
82
82
Appendix 31
TRUST AND FUND MANAGEMENT OPERATIONS - ASSETS AND ACCOUNTABILITIES
PHILIPPINE BANKS and NON-BANK FINANCIAL INSTITUTIONS (NBFIs)
Semesters-Ended
As of end-December Indicated
2009
ALL BANKS/NBFIs UNIVERSAL AND COMMERCIAL BANKS THRIFT BANKS NBFIs

Selected Accounts
End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18
TOTAL ASSETS 3,127.2 3,417.9 3,243.6 2,343.2 2,496.5 2,352.7 42.8 45.4 44.9 741.2 876.0 846.0
Peso / Regular Assets 2,722.5 2,947.6 2,680.8 2,003.4 2,096.2 1,864.7 40.0 41.9 41.2 679.2 809.4 774.9
Cash and Due from banks 2.0 2.0 1.3 2.0 2.0 1.3 0.0 0.0 0.0 0.0 0.0 0.0
Deposits in Banks 825.7 799.8 790.2 719.5 695.9 675.1 10.2 9.0 8.5 96.0 94.8 106.5
Financial Assets, net 1,557.5 1,760.9 1,660.3 1,001.8 1,074.9 1,022.5 24.4 27.8 28.2 531.3 658.2 609.7
Loans, net 81.9 82.5 84.1 39.2 37.3 38.4 4.5 4.5 3.9 38.3 40.7 41.8
Equity Investments (net) 79.2 78.9 76.9 76.3 76.1 74.6 0.3 0.1 0.1 2.6 2.7 2.2
ROPA (net) 0.1 0.1 0.1 0.1 0.1 0.1 - - - 0.0 0.0 0.0
Other assets 176.1 223.5 67.9 164.4 209.9 52.7 0.6 0.6 0.5 11.1 13.0 14.7
- - -
FCDU/EFCDU Assets 404.7 470.3 562.8 339.8 400.2 488.0 2.9 3.5 3.7 62.0 66.6 71.1
Cash and Due from banks - - - - - - - - - - - -
Deposits in Banks 82.5 101.1 104.6 68.0 84.4 86.2 0.0 0.1 0.1 14.5 16.6 18.4
Financial Assets, net 220.9 218.8 240.6 171.3 166.2 185.0 2.8 3.4 3.5 46.9 49.2 52.1
Loans, net 0.1 0.1 0.1 0.1 0.1 0.1 - - - - - -
Equity Investments (net) 0.0 0.0 0.0 0.0 0.0 0.0 - - - - - -
ROPA (net) - - - - - - - - - - - -
Other assets 101.1 150.2 217.4 100.4 149.4 216.7 0.0 0.1 0.1 0.6 0.8 0.6
- - -
TOTAL ACCOUNTABILITIES 2,151.3 2,120.5 1,914.8 1,711.9 1,690.6 1,481.4 11.7 10.1 9.8 427.8 419.8 423.5
- - -
Peso / Regular Accountabilities 1,810.5 1,775.3 1,507.4 1,411.7 1,384.7 1,117.0 11.5 9.7 9.4 387.3 380.9 381.0
Wealth/Asset/Fund Management Accounts (Trust) 1,497.2 1,404.9 1,281.9 1,119.2 1,034.4 916.4 10.9 9.2 9.0 367.0 361.3 356.4
UITF 748.1 688.9 616.9 581.8 524.1 447.6 5.3 4.8 4.4 161.1 160.0 164.9
Employee Benefit 332.2 345.5 343.0 230.8 241.3 240.3 2.9 3.1 3.3 98.5 101.0 99.4
Pre-Need 114.1 116.7 113.1 75.0 77.0 75.1 0.8 0.8 0.7 38.4 38.9 37.3
Others-Institutional Accounts 26.5 25.8 21.7 26.3 25.6 18.5 0.0 - - 0.2 0.2 3.2
Personal Trust 275.6 227.6 186.6 204.8 165.9 134.4 2.0 0.6 0.6 68.8 61.1 51.6
Personal Pension Fund - - - - - - - - - - - -
Personal Retirement Fund 0.1 0.1 0.1 0.1 0.1 0.1 - - - - - -
Others-Individual Accounts 0.4 0.4 0.4 0.4 0.4 0.4 0.0 - - 0.0 0.0 0.0
Other Fiduciary Services 312.5 369.9 225.0 291.7 349.8 200.1 0.6 0.4 0.4 20.3 19.7 24.6
Advisory/Consultancy - 0.0 0.0 - - - - - - - 0.000000 0.0
Special Purpose Trust 0.8 0.5 0.5 0.8 0.5 0.5 - - - - - -
FCDU/EFCDU Accountabilities 340.8 345.2 407.5 300.2 305.9 364.4 0.2 0.4 0.5 40.5 38.9 42.5
Wealth/Asset/Fund Management Accounts (Trust) 209.3 169.3 162.7 174.3 132.4 123.3 0.2 0.4 0.5 34.8 36.5 39.0
UITF 64.7 79.0 85.3 36.7 48.1 51.6 0.0 - - 28.0 31.0 33.7
Employee Benefit 6.2 6.6 6.9 6.2 6.5 6.9 0.0 0.0 0.0 0.0 0.0 0.0
Pre-Need 0.6 0.6 0.6 0.6 0.6 0.6 - - - 0.0 0.0 0.0
Others-Institutional Accounts 10.9 10.0 9.4 8.7 9.2 9.1 - - - 2.2 0.8 0.3
Personal Trust 108.3 58.6 44.8 103.6 53.5 39.4 0.2 0.4 0.5 4.5 4.7 4.9
Personal Pension Fund - - - - - - - - - - - -
Personal Retirement Fund 0.0 0.0 0.0 0.0 0.0 0.0 - - - - - -
Others-Individual Accounts 18.5 14.4 15.7 18.5 14.4 15.7 - - - - - -
Other Fiduciary Services 131.6 175.9 244.7 125.9 173.5 241.1 0.0 0.0 0.0 5.7 2.4 3.6
Advisory/Consultancy - - - - - - - - - -
Special Purpose Trust - - - - - - - - - -

Source : Supervisory Data Center Office of Supervisory Policy Development
Appendix 32
TRUST AND FUND MANAGEMENT OPERATIONS - ASSETS AND ACCOUNTABILITIES
TOTAL TRUST TRUST AGENCY OTHER FIDUCIARY ADVISORY AND CONSULTANCY SPECIAL PURPOSE
Selected Accounts
End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18
TOTAL ASSETS 3,127.2 3,417.9 3,243.6 1,706.4 1,574.2 1,444.6 975.9 1,297.4 1,328.8 444.1 545.8 469.8 - - - 0.8 0.5 0.5
Peso / Regular Assets 2,722.5 2,947.6 2,680.8 1,497.2 1,404.9 1,281.9 912.1 1,172.3 1,173.4 312.5 369.9 225.0 - - - 0.8 0.5 0.5
Cash and Due from banks 2.0 2.0 1.3 2.0 2.0 1.2 - - - 0.0 0.0 0.0 - - - - - -
Deposits in Banks 825.7 799.8 790.2 635.7 537.7 468.1 125.0 184.8 231.6 64.9 77.3 90.5 - - - 0.0 0.0 0.0
Financial Assets, net 1,557.5 1,760.9 1,660.3 796.6 802.0 750.5 714.4 913.2 864.2 46.4 45.7 45.7 - - - 0.0 0.0 0.0
Loans, net 81.9 82.5 84.1 14.7 14.1 14.1 66.2 67.7 69.2 0.3 0.3 0.3 - - - 0.8 0.5 0.5
Equity Investments (net) 79.2 78.9 76.9 13.8 13.4 11.3 0.2 0.3 0.4 65.2 65.2 65.2 - - - - - -
ROPA (net) 0.1 0.1 0.1 0.0 0.0 0.1 0.0 0.0 0.0 0.1 0.1 0.0 - - - - - -
Other assets 176.1 223.5 67.9 34.3 35.8 36.6 6.2 6.4 8.1 135.6 181.3 23.2 - - - 0.0 0.0 0.0
FCDU/EFCDU Assets 404.7 470.3 562.8 209.3 169.3 162.7 63.9 125.1 155.3 131.6 175.9 244.7 - - - - - -
Cash and Due from banks - - - - - - - - - - - - - - - - -
Deposits in Banks 82.5 101.1 104.6 63.2 71.3 72.4 7.2 15.4 15.2 12.1 14.4 17.0 - - - - - -
Financial Assets, net 220.9 218.8 240.6 143.5 96.5 88.8 55.7 108.0 138.2 21.7 14.3 13.7 - - - - - -
Loans, net 0.1 0.1 0.1 - - - - - - 0.1 0.1 0.1 - - - - - -
Equity Investments (net) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - - - - - - -
ROPA (net) - - - - - - - - - - - - - - - - - -
Other assets 101.1 150.2 217.4 2.6 1.5 1.5 0.9 1.6 1.9 97.6 147.1 213.9 - - - - - -
TOTAL ACCOUNTABILITIES 3,127.2 3,417.9 3,243.6 1,706.4 1,574.2 1,444.6 975.9 1,297.4 1,328.8 444.1 545.8 469.8 - - - 0.8 0.5 0.5
Peso / Regular Accountabilities 2,722.5 2,947.6 2,680.8 1,497.2 1,404.9 1,281.9 912.1 1,172.3 1,173.4 312.5 369.9 225.0 - - - 0.8 0.5 0.5
Wealth/Asset/Fund Management Accounts (Trust) 2,409.2 2,577.2 2,455.3 1,497.2 1,404.9 1,281.9 912.1 1,172.3 1,173.4 - - - - - - - - -
UITF 748.1 688.9 616.9 748.1 688.9 616.9 - - - - - - - - - - - -
Employee Benefit 386.5 398.4 393.0 332.2 345.5 343.0 54.3 52.9 50.0 - - - - - - - - -
Pre-Need 115.0 117.5 113.8 114.1 116.7 113.1 0.8 0.8 0.7 - - - - - - - - -
Others-Institutional Accounts 611.0 779.2 721.4 26.5 25.8 21.7 584.5 753.4 699.7 - - - - - - - - -
Personal Trust 275.6 227.6 186.6 275.6 227.6 186.6 - - - - - - - - -
Personal Pension Fund - - - - - - - - - - - - - - - - - -
Personal Retirement Fund 0.1 0.1 0.1 0.1 0.1 0.1 - - - - - - - - - - - -
Others-Individual Accounts 272.8 365.6 423.5 0.4 0.4 0.4 272.4 365.2 423.1 - - - - - - - - -
Other Fiduciary Services 312.5 369.9 225.0 - - - - - - 312.5 369.9 225.0 - - - - - -
Advisory/Consultancy - - - - - - - - - - - - - - - - - -
Special Purpose Trust 0.8 0.5 0.5 - - - - - - - - - - - - 0.8 0.5 0.5
FCDU/EFCDU Accountabilities 404.7 470.3 562.8 209.3 169.3 162.7 63.9 125.1 155.3 131.6 175.9 244.7 - - - - - -
Wealth/Asset/Fund Management Accounts (Trust) 273.1 294.4 318.0 209.3 169.3 162.7 63.9 125.1 155.3 - - - - - - - - -
UITF 64.7 79.0 85.3 64.7 79.0 85.3 - - - - - - - - - - - -
Employee Benefit 6.5 6.9 7.3 6.2 6.6 6.9 0.2 0.4 0.4 - - - - - - - - -
Pre-Need 0.6 0.6 0.6 0.6 0.6 0.6 - - - - - - - - - - - -
Others-Institutional Accounts 44.7 49.5 53.4 10.9 10.0 9.4 33.8 39.4 44.0 - - - - - - - - -
Personal Trust 108.3 58.6 44.8 108.3 58.6 44.8 - - - - - - - - - - -
Personal Pension Fund - - - - - - - - - - - - - - - - - -
Personal Retirement Fund 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - - - - - - -
Others-Individual Accounts 48.3 99.7 126.6 18.5 14.4 15.7 29.8 85.3 110.9 - - - - - - - - -
Other Fiduciary Services 131.6 175.9 244.7 - - - - - - 131.6 175.9 244.7 - - - - - -
Advisory/Consultancy - - - - - - - - - - - - - - - - - -
Special Purpose Trust - - - - - - - - - - - - - - - - - -


Appendix
38 83 38
First Semester 2018
84
84
Supervision and Examination Sector
Appendix 33
TRUST AND FUND MANAGEMENT OPERATIONS - INCOME AND EXPENSES
For the Period-Ended Indicated
UNIVERSAL AND COMMERCIAL

ALL BANKS/NBFIs THRIFT BANKS NBFIs
Selected Accounts BANKS
End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18 End-Jun'17 End-Dec'17 End-Jun'18
TRUST INCOME 4.9 10.2 5.2 3.6 7.3 3.7 0.1 0.1 0.1 1.2 2.8 1.4
Fees and Commissions 4.7 9.9 4.9 3.5 7.2 3.6 0.1 0.1 0.1 1.2 2.6 1.3
Other Income 0.2 0.4 0.2 0.1 0.2 0.1 0.0 0.0 0.0 0.1 0.2 0.1
TRUST EXPENSES 2.1 4.6 2.3 1.3 2.8 1.3 0.0 0.1 0.0 0.8 1.8 0.9
Compensation/Fringe Benefits 0.8 1.9 0.9 0.6 1.4 0.7 0.0 0.0 0.0 0.2 0.5 0.2
Taxes and Licenses 0.5 1.0 0.5 0.2 0.4 0.2 0.0 0.0 0.0 0.2 0.5 0.3
Other Administrative Expenses 0.3 0.7 0.3 0.2 0.5 0.2 0.0 0.0 0.0 0.1 0.2 0.1
Depreciation/Amortization 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0
Allocated Indirect Expenses 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 - 0.0 0.0
Other Expenses 0.4 0.8 0.5 0.1 0.3 0.1 0.0 0.0 0.0 0.2 0.6 0.3
OPERATING INCOME / (LOSS) 2.8 5.6 2.8 2.3 4.5 2.4 0.0 0.0 0.0 0.5 1.0 0.5


Appendix 34
COMPARATIVE STATEMENT OF CONDITION
NON-BANK FINANCIAL INSTITUTIONS (NBFIs)
1/
ALL NBFIs NBQBs NSSLAs Other NBFIs 1/
Selected Accounts
End-Jun '17 End-Dec '17 End-Jun '18 End-Jun '17 End-Dec '17 End-Jun '18 End-Jun '17 End-Dec '17 End-Jun '18 End-Jun '17 End-Dec '17 End-Jun '18
ASSETS 598.3 621.5 626.8 237.4 260.9 260.6 173.4 193.5 210.4 187.5 167.0 155.8
Cash and Due from Banks 88.2 87.6 70.7 36.0 42.0 35.7 20.7 23.5 14.7 31.5 22.1 20.3
Loan Portfolio (net) 364.1 398.3 437.5 144.3 164.1 172.3 123.3 134.9 169.5 96.4 99.3 95.7
Investments (net) 89.6 89.7 79.3 46.8 44.3 40.5 21.9 23.4 18.3 20.9 22.0 20.5
Other Assets 56.5 45.8 39.3 10.3 10.5 12.1 7.5 11.8 7.9 38.6 23.6 19.3
LIABILITIES AND CAPITAL 598.3 621.5 626.8 237.4 260.9 260.6 173.4 193.5 210.4 187.5 167.0 155.8
Liabilities 364.5 370.4 377.6 192.7 210.0 210.1 48.4 55.1 70.1 123.4 105.3 97.3
Deposit Liabilities 38.6 43.0 46.0 - - - 38.6 43.0 46.0 - - -

Peso Liabilities 38.6 43.0 46.0 - - - 38.6 43.0 46.0 - - -
Demand and NOW - - - - - - - - - - - -
Savings 31.6 35.4 39.8 - - - 31.6 35.4 39.8 - - -
Time 7.0 7.6 6.2 - - - 7.0 7.6 6.2 - - -
Foreign Currency - - - - - - - - - - - -
Bills Payable 227.3 251.0 257.8 156.7 177.6 176.8 3.8 5.0 17.6 66.8 68.4 63.4
Deposit Substitutes 131.1 131.0 118.1 129.6 129.5 116.6 - - - 1.5 1.5 1.5
Others 96.3 120.0 139.7 27.1 48.1 60.2 3.8 5.0 17.6 65.3 66.9 61.9
- -
Special Financing - - - - - - - - - - - -
Time Certificates of Deposits - SF - - - - - - - - - - - -
Special Time Deposits - - - - - - - - - - - -
Unsecured Subordinated Debt - - - - - - - - - - - -
Other Liabilities 98.5 76.4 73.7 36.0 32.4 33.3 6.0 7.1 6.5 56.6 36.9 33.9
Capital Accounts 233.7 251.0 249.3 44.7 51.0 50.4 125.0 138.4 140.3 64.1 61.7 58.5
Capital Stock 952.1 172.4 172.7 14.0 15.9 15.9 101.7 109.2 113.0 836.4 47.4 43.8
Assigned Capital - - - - - - - - - - - -
Net Due to H.O. - - - - - - - - - - - -
Surplus, Surplus Reserves & Undivided Profits (718.3) 78.6 76.6 30.7 35.1 34.6 23.3 29.2 27.3 (772.4) 14.3 14.7
1/ Includes only the reporting entities

Appendix
58 85 58
First Semester 2018
86
86
haha
Appendix 35
COMPARATIVE STATEMENT OF INCOME AND EXPENSES
NON-BANK FINANCIAL INSTITUTIONS (NBFIs)
For the Periods-Ended Indicated
ALL NBFIs 1/ NBQBs NSSLAs Other NBFIs 1/

Selected Accounts
End-Jun '17 End-Dec '17 End-Jun '18 End-Jun '17 End-Dec '17 End-Jun '18 End-Jun '17 End-Dec '17 End-Jun '18 End-Jun '17 End-Dec '17 End-Jun '18
OPERATING INCOME 46.3 77.8 47.1 12.3 25.9 12.8 11.1 24.1 14.2 22.9 27.9 20.1
Net Interest Income 30.1 53.8 32.6 8.7 18.8 10.2 9.9 21.3 12.7 11.6 13.7 9.8
Interest Income 22.2 36.0 23.3 0.8 1.5 0.6 10.7 23.2 13.9 10.7 11.3 8.8
Less: Interest Expenses 4.6 9.4 11.6 2.6 5.7 10.3 0.9 1.8 - 1.1 1.9 1.3
-
Non-interest Income 16.2 24.0 14.5 3.6 7.1 2.7 1.3 2.8 1.5 11.3 14.2 10.3
Fee-based Income 5.6 10.6 5.7 2.6 5.0 2.5 0.9 1.9 1.0 2.1 3.7 2.1
Trading Income/(Loss) 0.6 0.9 (0.2) 0.5 0.8 (0.2) 0.0 0.0 0.0 0.1 0.1 0.1
Other Income/(Loss) 4.3 6.3 3.7 0.5 1.3 0.4 0.4 0.9 0.5 3.5 4.1 2.8
OPERATING EXPENSES 27.9 41.3 26.5 6.8 14.0 8.0 2.6 5.8 3.3 18.5 21.5 15.3
Bad Debts Written Off 0.2 0.4 0.2 0.2 0.4 0.2 0.0 0.0 - 0.0 0.0 -
-
Provision for Probable Losses 3.2 7.1 4.1 2.2 4.5 2.6 0.7 1.6 0.9 0.3 1.0 0.5
-
Other Operating Expenses 24.6 33.9 22.3 4.5 9.2 5.1 2.0 4.2 2.4 18.1 20.4 14.7
Overhead Costs 15.3 21.2 13.8 3.1 6.5 3.6 1.0 2.3 1.2 11.2 12.4 9.0
Other Expenses 9.2 12.6 8.4 1.3 2.7 1.6 0.9 1.9 1.2 7.0 8.0 5.7
NET OPERATING INCOME (LOSS) 18.4 36.5 20.6 5.5 11.8 4.9 8.5 18.3 10.9 4.4 6.4 4.8
Extraordinary Credits/(Charges) 0.1 0.8 0.2 0.5 1.1 0.8 (0.6) (0.8) (0.8) 0.2 0.4 0.2
NET INCOME/(LOSS) BEFORE TAX 18.5 37.3 20.8 6.0 13.0 5.6 7.9 17.4 10.1 4.6 6.9 5.0
-
Provision for income tax 6.7 5.2 3.1 1.6 3.6 1.7 0.0 0.0 0.0 5.1 1.6 1.4
-
NET INCOME/(LOSS) AFTER TAX 11.8 32.1 17.7 4.4 9.4 3.9 7.9 17.4 10.1 -0.5 5.2 3.6
Profitability
Return on Assets (%) 4.2 5.5 6.2 3.4 3.9 3.6 9.2 9.5 10.2 0.5 3.3 3.3
Return on Equity (%) 10.2 13.6 15.7 16.2 19.5 18.8 12.6 13.2 14.8 1.5 9.4 9.4
1/ Includes only the reporting entities

2/ Pawnshops' income from foreign exchange dealing/money changing, remittances, bills payments and other corollary businesses
86

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This semestral report is prepared pursuant to Section 39(c), Article V of Republic Act (R.A.) No.

7653 (The New

Foreign Currency Deposit Unit (FCDU) System 32

The Non-Bank Financial Institutions

Summary and Policy Direction 48

Financial Supervision Sector i

ii Office of Supervisory Policy Development ii

Financial Supervision Sector iii

iv Office of Supervisory Policy Development iv

Financial Supervision Sector v

B. FINANCIAL AND OTHER RATIOS

vi Office of Supervisory Policy Development vi

Financial Supervision Sector vii

The banking system’s total assets expanded

10.3 percent higher than the level recorded as

(RCBs) stood at P1,187.8 billion (7.6 percent)

Financial Supervision Sector 3

The TLP of the banking system grew by

4 Under the Expanded Report on Real Estate Exposures, REEs are

4 Office of Supervisory Policy Development 4

Financial Supervision Sector 5

Table 1 the banking system’s 12.8 percent compliance

6 Office of Supervisory Policy Development 6

The NPLs went up to P174.1 billion from

16.6 percent TLP expansion. Moreover, the NPL

Financial Supervision Sector 7

8 Office of Supervisory Policy Development 8

By component, capital stock grew by 16.8 percent 0

Meanwhile, the U/KBs’ risk-based capital adequacy

to 15.2 percent as of end-June 2018 from 14.4

Financial Supervision Sector 9

Banking landscape caters to a wider network Electronic Money Issuers

As of end-June 2018, banks recorded a network of Mobile Banking

Head Office (Left Side) Other Office (Right Side)

The financial technology (fintech) landscape of the 12000

Philippines is evolving and cuts across payments, 10000

insurance, deposit-taking, lending, capital raising, 8000

investment management and financial market

As of end-June 2018, Internet Banking and

10 Office of Supervisory Policy Development 10

This aims to facilitate greater access to efficient

units stationed all over the country. The concept 4,000

also rationalized the various classifications of 3,000

banking offices such as extension offices, other 2,000

banking offices and microbanking offices under 1,000

the branch-lite network. 0

Growth in derivative portfolio drives Source of data: Supervisory Data Center

contingent accounts expansion

On-Balance Sheet 15,704.4 14,236.4 10.3

The continued expansion in the derivative

Financial Supervision Sector 11

What is Driving the Behavior of

12 Office of Supervisory Policy Development 12

Macroeconomic Determinants Bank-specific Determinants

Financial Supervision Sector 13

Source of Data: Supervisory Data Center

To determine the factors that guide the trend

14 Office of Supervisory Policy Development 14

(Eq.2) Meanwhile, the coefficients are checked using

6 A slight modification to Equation 2 was included to incorporate

Financial Supervision Sector 15

16 Office of Supervisory Policy Development 16

_cons 0.022* 0.014* 0.024* 0.017* 0.021* 0.035* _cons 8.781