nbb with quasi-banking functions (nbqbs)€¦ · non-bank financial institutions nbb with...

19

NBQ

BsNon-Bank Financial Institutions with Quasi-Banking Functions (NBQBs)OverviewNon-bank financial institutions(NBFIs) are financial institutions supervised by BSP. These do not have a full banking license but they facilitate bank-related financial services, i.e., investment, risk pooling, contractual savings and market brokering. In the Philippines, NBFIs are composed of the non-banks with quasi-banking functions and non-banks without quasi-banking functions.

Non-banks with quasi-banking functions (NBQBs) consist of financial institutions engaged in the borrowing of funds from 20 or more lenders for the borrower’s 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.

As of end-June 2013, total resources of NBQBs accounted for 40.4 percent (P181.4 billion) of the total assets of non-bank financial institutions (NBFIs) supervised by the BSP, total of which composed 5.0 percent (P449.3 billion) of the Philippine Financial System’s total resources (P9,062.5 billion). This is a higher proportion compared to same period last year’s 37.8 percent (P164.7 billion) which then represented 5.5 percent (P435.1 billion) of the Philippine Financial System’s total resources (P7,845.1 billion).

During the review period, there were 13 operating NBQBs in the country [six investment houses (IHs), six financing companies (FCs) and one other non-bank]. The number of NBQBs declined from last semester’s 14 operating NBQBs due to the approval by the Monetary Board of the request for revocation of quasi-banking license of an IH, i.e., BPI Leasing Corporation on 08 January 201315. Of the 13 operating NBQBs, seven are linked to universal and commercial banks (two IHs and five FCs). The number of operating NBQBs is 0.2 percent of the total 6,319 NBFIs supervised/regulated by the BSP. NBQBs’ total office network stood at 76 (13 head offices and 63 branches/other offices).

NBQBs post record high bottom line figures The year-on-year growth in net profit surpassed the 10.2 percent growth in average assets and the 21.3 percent expansion in average equity. The NBQB industry posted a net profit of P8.8 billion in end-June 2013, which accounted for 43.3 percent of the total net profit of NBFIs. This is more than twice the profit recorded at end-June 2012 of P3.9 billion. FCs with QB accounted for 17.2 percent of net profit while IHs with QB accounted for 82.8 percent. Operating income improved by 36.0 percent to P11.8 billion from year ago’s P8.7 billion. This is due to the surge in the non-interest income particularly of trading gains as it more than tripled to P3.9 billion in end-June 2013 from P1.2 billion in end-June 2012. Net interest income also rose by 5.2 percent to P4.8 billion while non-interest income soared by 69.7 percent to P7.0 billion as the economy picked up particularly driven by construction, real estate, services catering to outsourcing and insourcing, tourism and remittances.

Operating expenses increased by 30.3 percent to P5.8 billion from P4.4 billion same period last year. Accordingly, cost-to-income ratio slightly rose to 38.9 percent from the 38.6 percent at end-December 2012 but better than the 39.0 percent recorded at end-June 2012 (Figure 36).

50.0

60.0

70.0

80.0

15.0

20.0

25.0

In Percent (RHS)In P Billion (LHS)

Figure 36Non-Bank Financial Institutions with Quasi-Banking Functions (NBQBs)

Cost-to-Income Ratio

0.0

10.0

20.0

30.0

40.0

0.0

5.0

10.0

15.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 June 2013*

Operating Income (LHS)

Operating Expense (net of bad debts and provisions) (LHS)Operating Expense (net of bad debts and provisions) (LHS)

Cost-to-Income (RHS)___________________________

15Circular Letter (CL) 2013-003 dated 08 January 2013.

20

Stat

us R

epor

t on

the

Phili

ppin

e Fi

nanc

ial S

yste

m

Likewise, NBQBs provided better return on assets (ROA) at 7.2 percent, up 4.6 percent at end-June 2012 and return on equity (ROE) at 30.8 percent, up from 21.9 percent.

Resources channeled mostly to loans and investments Total assets of NBQBs stood at P181.4 billion, higher by 10.2 percent from year ago’s P164.7 billion (Table 43). IHs with QB held a slightly bigger share of NBQB total assets with a 54.6 percent share (P99.0 billion), up from last year’s 51.5 percent share (P84.8 billion). Meanwhile, FCs with QB pitched in the remaining 45.4 percent share (P82.4 billion), down from year ago’s 48.5 percent share (but up from P79.8 billion).

NBQB assets were mainly channeled to loans, net, and investments, net, with a combined share of 77.5 percent of total assets, down from year ago’s 78.1 percent share (Figure 37). Loans, net, garnered 36.5

percent share (P66.3 billion), down from year ago’s 41.2 percent (P67.8 billion). Investments, net, on the other hand, occupied a 41.0 percent share (P74.4 billion), up from last year’s 36.9 percent share (P60.8 billion).

Manageable loan and asset qualityNBQB loan and asset quality remained manageable for the first half of 2013. NBQBs’ non-performing loans (NPL) ratio of 4.9 percent slightly grew from year ago’s 4.7 percent, which resulted from the slight 2.4 percent growth in NPLs to P3.4 billion from same time last year’s P3.3 billion. By subgroup, IHs with QB posted better NPL ratio at 0.4 percent, as against FCs with QB NPL ratio of 5.3 percent. Meanwhile, NPL coverage ratio dropped to 71.4 percent from year ago’s 71.9 percent which was caused by the 2.4 percent growth in NPLs surpassing the 1.8 percent rise in LLRs.

Cash and Due from Banks,

16.5%

Equity Investments,

net, 41.0%


14.7%Equity Investments,

net, 36.9%


Asset and Funding Mix

Loans, net, 36.5%

Other Assets, 5.6%

ROPA, net, 0.4%

June 2013P181.4 billion

Loans, net,41.2%

Other Assets, 6.6%

ROPA, net,0.6%


NPLs and NPL COVERAGE RATIO NPAs and NPA COVERAGE RATIO DISTRESSED ASSETS RATIO


0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

In PercentIn P Billion

NPLs (LHS) LLRs (LHS)

NPL Ratio (RHS) NPL Coverage Ratio (RHS)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

-

1.0

2.0

3.0

4.0

5.0

6.0


NPAs (LHS) NPA Reserves (LHS)

NPA Ratio (RHS) NPA Coverage Ratio (RHS)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0


NPAs (LHS)RLs, Performing (LHS)Distressed Assets Ratio (RHS)

21

NBQ

Bs

As of end-June 2013, NBQBs’ real and other properties acquired (ROPA) slightly dropped by 15.6 percent to P0.8 billion from same period last year’s P0.9 billion. As a result, ROPA-to-gross assets ratio also went down to 0.4 percent from same period last year’s 0.5 percent. By subgroup, FCs with QB posted better ROPA-to-gross assets ratio at 0.4 percent as against to 0.5 percent of IHs with QB. ROPA reserves went down to P0.1 billion from same time last year’s P0.2 billion resulting to a lower ROPA coverage ratio at 14.4 percent from year ago’s 20.0 percent.

NBQBs’ non-performing assets (NPA) ratio of 2.3 percent fell from year ago’s 2.6 percent. By subgroup, IHs with QB posted better NPA ratio at 0.5 percent, compared to FCs with QB NPL ratio of 4.5 percent. NPA coverage ratio was enhanced to 59.2 percent from year ago’s 58.5 percent. This is due to the 1.9 percent decline in the NPAs caused by 15.6 percent drop in ROPA surpassing the decline in NPA reserves.

As of the end-June 2013, NBQBs’ distressed assets went down to P4.4 billion from P4.5 billion at end-June 2012 resulting to a distressed assets ratio of 6.3 percent, same as year ago. By subgroup, FCs with QB posted better distressed assets ratio at 6.07 percent, as compared to IHs with QB of 8.53 percent (Figure 38).

Ample liquidity, stable funding and adequate capitalizationThe NBQB industry maintained ample liquidity as liquid assets-to-bills payable ratio expanded to 81.2 percent from year ago’s 63.1 percent. Meanwhile,

gross loans-to-bills payable ratio dropped to 62.0 percent from year ago’s 64.5 percent (Table 44). Most of the FCs and IHs with QB are also linked to universal and commercial banks which can cushion the NBQB industry whenever liquidity problems arise.

The industry’s total liabilities stood at P137.1 billion, up by 7.0 percent (P9.0 billion) from year ago’s P128.1 billion. Bills payable, which comprise the bulk (80.9 percent) of total liabilities, rose by 1.9 percent year-on-year. Other liabilities which formed the remaining 19.1 percent of total liabilities also grew by 35.8 percent (Figure 39).

The industry’s total capital accounts posted a robust growth of 21.3 percent (P7.8 billion) to reach P44.3 billion from year ago’s P36.5 billion. This was influenced by the growth in retained earnings and undivided profits by 40.5 percent to P32.3 billion from year ago’s P23.0 billion. Meantime, capital stock fell by 11.2 percent to P12.0 billion from year ago’s P13.5 billion. This is due to the decline in the number of operating NBQBs to 13 from 15 a year ago.

By sub-group, IHs with QB’s retained earnings beefed up by 67.4 percent surpassing the 9.3 percent decline in FCs with QB’s retained earnings. On the other hand, the capital stock of both FCs and IHs with QB fell by 13.4 percent and 10.0 percent, respectively.

The industry continued to be well capitalized during the review period. Total capital accounts-to-total assets ratio for NBQBs increased to 24.4 percent from year ago’s 22.2 percent.

Capital Accounts, 24.4%


Capital Accounts,

22.2%


Figure 39

Non-Bank Financial Institutions with Quasi-Banking (NBQBs)Funding Mix

Bills Payable, 61.1%

Other Liabilities, 14.5%

Bills Payable, 66.1%

Other Liabilities, 11.7%

22

Stat

us R

epor

t on

the

Phili

ppin

e Fi

nanc

ial S

yste

m

OverviewNon-stock savings and loan associations (NSSLAs)16 are non-stock, non-profit corporations engaged in the business of accumulating member’s savings for lending to households by providing long-term financing for home building and/or development and for personal finance.

As of end-June 2013, total resources of NSSLAs comprised 29.6 percent (P133.0 billion) of the total resources of the BSP-supervised NBFIs, which constituted 5.0 percent (P449.3 billion) of the Philippine Financial System’s total resources (P9,062.5 billion). This is a higher proportion compared to same period last year’s 27.1 percent (P117.9 billion) which then represented 5.5 percent (P435.1 billion) of the Philippine Financial System’s total resources (P7,845.1 billion). Operations of the NSSLA industry remained favorable and profitable as a result of credit expansion funded principally by deposits and additional capital contribution from their members.

During the review period, there were 72 operating NSSLAs in the country at end-June 2013, with one additional association established in the second half of 201217. This figure accounted for only 1.1 percent of the total 6,319 operating NBFIs under the supervision/regulation of BSP. NSSLAs’ total number of offices stood at 198 with 72 head offices and 126 branches/other offices.

NSSLAs posted higher earnings The NSSLA industry posted a net profit of P7.5 billion for the period ended 30 June 2013, accounting for 37.2 percent of the total NBFI’s profit of P20.2 billion. This is higher by 25.2 percent from P6.0 billion earned same period last year. Operating income grew by 17.0 percent to P10.2 billion from year ago’s P8.7 billion supported by the growths in net interest income (20.8 percent to P8.5 billion) and non-interest income (1.2 percent to P1.7 billion). A growing local economy fed by consumer spending and inflows from OF remittances, IT-BPO and tourism, elevated credit demand with NSSLA posting an 11.8 percent rise in loan portfolio in the first half of 2013.

Other profitability indicators similarly showed an uptrend. The industry’s return on assets (ROA) and return on equity (ROE) improved to 13.3 percent from 10.4 percent at end-June 2012 and 17.1 percent

from 13.3 percent at end-June 2012, respectively. On the other hand, cost-to-income ratio went down to 12.5 percent from year ago’s 18.4 percent due to the 17.0 percent growth in operating income surpassing 32.5 percent increase in operating expenses to P2.4 billion from P1.8 billion (Figure 40).

NSSLA industry assets continued to expandTotal assets of NSSLAs stood at P133.0 billion, higher by 12.8 percent from year ago’s P117.9 billion (Table 47). These were mainly channeled to loans, net with 76.3 percent share (P101.4 billion), lower than year ago’s 77.0 percent share (but up from P90.7 billion), as shown in Figure 41. Meantime, cash and due from banks, investments, net and real and other properties acquired and other assets held the remaining 23.7 percent (P31.5 billion) of NSSLAs’ total assets, up from last year’s 23.0 percent (P27.2 billion).

Loan and asset quality continued to improveNSSLA loan and asset quality continued to improve in the first half of 2013. NSSLAs’ non-performing loans (NPL) ratio of 8.8 percent slightly went down from

Non-Stock Savings and Loan Associations (NSSLAs)

___________________________

16NSSLAs are among the non-bank financial institutions being supervised by BSP

pursuant to Republic Act No. 8367, otherwise known as the Non-Stock Savings and

Loan Association Act of 1997.

17Circular Letter 2013-041 dated 25 July 2013 pertains to the approval by the

Monetary Board of the establishment of Sanitary Care Products Asia on 13 December

2012. It started its operations on 15 May 2013.

15.0

20.0

25.0

12.0

14.0

16.0

18.0

20.0

In Percent (RHS)In P Billion (LHS)

Figure 40Non Stock Savings and Loan Associations (NSSLAs)

Cost-to-Income Ratio

0.0

5.0

10.0

15.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2009 2010 2011 2012 June 2013

Operating Income (LHS)

Operating Expense (net of bad debts and provisions) (LHS)Operating Expense (net of bad debts and provisions) (LHS)

Cost-to-Income (RHS)

23

NSSLAs


8.4%

Other Assets,7.2%

ROPA, net,0.2%

Equity Investments,

net, 7.9%


7.1%

Other Assets, 8.5%

ROPA, net, 0.2%

Equity Investments,

net, 7.2%

Figure 41Non-Stock Savings and Loan Associations (NSSLAs)

Asset and Funding Mix

Loans, net,76.3%


Loans, net, 77.0%


year ago’s 9.8 percent. The 11.8 percent growth to P101.4 billion in total loan portfolio triggered the decrease in the NPL ratio. Meanwhile, NPL coverage ratio widened to 81.8 percent from year ago’s 77.6 percent which was caused by 5.4 percent rise in LLRs to P7.9 billion from P7.5 billion.

As of end-June 2013, NSSLAs’ real and other properties acquired (ROPA) were steady at P0.2 billion while gross assets grew by 12.4 percent to P140.9 billion. This resulted to the slight drop in ROPA-to-gross assets ratio to 0.1 percent from 0.2 percent same period last year.

NSSLAs’ non-performing assets (NPA) ratio declined to 7.0 percent from year ago’s 7.9 percent. The 12.4 percent buildup in gross assets to P140.9 billion triggered the drop in the NPA ratio. Meantime, NPA coverage ratio widened to 80.1 percent from same time last year’s 76.0 percent due to the 5.4 percent increase in NPA reserves to P7.9 billion from P7.5 billion.

As of the end-June 2013, NSSLAs’ distressed assets ratio declined to 9.0 percent from same period last year’s 10.0 percent as a result of unchanged distressed assets at P9.9 billion and the growth in loans (Figure 42).

NSSLAs enjoyed ample liquidity, stable funding and adequate capitalizationNSSLAs maintained adequate liquidity to service deposit withdrawals. For the first half of 2013, the ratio of cash and due from banks-to-deposits stood at 44.2 percent from 38.8 percent at end-June 2012 while the ratio of liquid assets-to-deposits registered at 82.2 percent from 85.3 percent at end-June 2012.

NPLs and NPL COVERAGE RATIO NPAs and NPA COVERAGE RATIO DISTRESSED ASSETS RATIO


0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0


NPLs (LHS) LLRs (LHS)

NPL Ratio (RHS) NPL Coverage Ratio (RHS)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0


NPAs (LHS) NPA Reserves (LHS)

NPA Ratio (RHS) NPA Coverage Ratio (RHS)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0


NPAs (LHS) Distressed Assets Ratio (RHS)

24

Stat

us R

epor

t on

the

Phili

ppin

e Fi

nanc

ial S

yste

m

The industry’s total liabilities stood at P30.4 billion, up by 17.1 percent (P4.5 billion) from year ago’s P25.9 billion. Deposit liabilities, which comprised the bulk (83.3 percent) of total liabilities, rose by 17.1 percent to P25.3 billion from year ago’s P21.6 billion. Bills payable and other liabilities, which formed the remaining 16.7 percent of total liabilities, also grew by 17.5 percent to P5.1 billion from year ago’s P4.3 billion (Figure 43).

The industry’s total capital accounts were shored up by 11.6 percent (P10.6 billion) to reach P102.6 billion from year ago’s P92.0 billion. This was influenced

by the growth in capital contributions from members and undistributed earnings. Total capital accounts-to-total assets ratio, which measures the extent of leveraging during the period, determines how much capital is needed to cushion against credit risks of the NSSLA industry. Said metric is important considering the funding structure of NSSLAs. While it was slightly down to 77.2 percent from the previous year’s 78.0 percent, the ratio remains high as the industry’s funding source primarily comes from its members’ capital contribution and undistributed profit from operation.

Deposit Liabilities, 19.0%

Bills Payable, 1.2%

Other liabilities, 2.6%


Deposit Liabilities, 18.3%

Bills Payable, 0.3%

Other liabilities, 3.4%



Funding Mix



25

Trust Operations

Trust OperationsOverviewTrust and other fiduciary services continued with its upward trajectory, ending the first half of 2013 at P3,039.3 billion, 0.4 percent (P13.4 billion) more than year ago’s P3,025.9 billion. While trust assets grew, it did so at a slower rate than year ago’s 17.9 percent growth rate as cash and due from banks, its primary growth driver in the past, declined by P267.5 billion. In its stead, investment in equity securities, government securities, and other debt securities combined, went up by P315.7 billion, roughly twice their level of growth a year ago of P158.2 billion.

Meanwhile, deposits in banks rose by P72.3 billion, almost four times its increase of P18.3 billion a year ago.

Trust Operations Registered higher net IncomeDespite the slowdown in the growth of trust accounts, income from trust grew by 15.4 percent (P0.7 billion) to P4.8 billion from P4.2 billion a year ago indicating more efficient handling of accounts as reflected further by the 23.9 percent (P0.6 billion) increase in net income.

Investor Sentiment Spurred Preference For Equity SecuritiesPreference for equity securities, which formed 15.8 percent of its total assets, its second biggest holding next to cash and due from banks, was spurred mostly by investor sentiment which in turn was driven by the robust growth of the country’s economy as well as the continued recovery of its two major trading partners, namely, the United States and Japan.

Next to equity securities, government securities represented the third biggest group of assets held by trust offices. While they provide lower returns relative to equity securities, government securities offer a safe haven for investments making them attractive especially given the backdrop of low interest rate environment and strong economic performances backed by the credit rating upgrade given by Fitch as well as Standard and Poor’s in 2013.

The shift in the type of asset held by trust entities,

however, was primarily influenced by the issuance of Memorandum No. M-2013-021 in May 2013. Said memorandum limited special deposit account (SDA) access of trust entities and served to reinforce the objective of Memorandum No. M-2012-034 issued in July 2012, that is to discourage the use of the SDA as an investment vehicle and for it to revert back to its originally intended purpose of absorbing excess liquidity in the market.

This notwithstanding, the public’s appetite for SDAs remains to be served by the Unit Investment Trust Fund (UITF) as it is the only type of pooled funds granted access to the SDA facility. In fact, because of its access to SDAs, its share of trust accountabilities more than doubled to 14.1 percent (P427.1 billion) from 6.3 percent (P162.4 billion) a year ago, indicating a shift in the form of accountabilities held as agency accounts, other fiduciary services and special purpose trust all posted declines. Further, it is worth noting that the increment in UITFs represented 74.8 percent (P264.7 billion) of the total hike in trust accounts. During mid-2012 and 2011, growth stemmed mostly from agency accounts, but with the limit on SDA access, adjustments on both the assets and accountabilities of trust entities were made.

Figure 44. Trust Asset MixAs of End-June 2013

37.7Cash and Due from banksDeposits in Banks

Financial Assets, net

Loans, net

Equity Investments (net)

ROPA (net)

Other assets

Total AssetsP3,039.3 billion

37.7%

8.7%

41.1%

2.1%

2.5%

0.0%

7.9%

300.00

400.00

500.00

600.00

700.00

Growth/(Decline) in Total Accountabilities

Special Purpose Trust

Advisory/Consultancy

(400.00)

(300.00)

(200.00)

(100.00)

-

100.00

200.00

300.00

Jun-13 Jun-12 Jun-11

Other Fiduciary Services

Wealth/Asset/Fund Management Accounts (Agency)

Wealth/Asset/Fund Management Accounts (Trust)

26

Stat

us R

epor

t on

the

Phili

ppin

e Fi

nanc

ial S

yste

m

Trust Accounts Had Ahigh Proportion Of Cash And Due From BanksBy Managed Fund, the change in the type of assets held from cash and due from accounts to financial assets was notable in agency accounts and other fiduciary accounts. Trust accounts maintained its high proportion of cash and due from accounts indicating a more conservative approach to its asset placements while special purpose accounts held mostly loans owing to its nature.

Thrift Banks and Investment Houses Influence Growth Of Trust and Fiduciary AccountsBy type of financial institution, the change in asset holdings may be observed in universal/commercial banks (U/KBs), thrift banks (TBs) and non-bank financial institutions (NBFIs), but is most pronounced in NBFIs which grew by P21.1 billion to P66.0 billion and TBs, which dropped by P10.0 billion to P34.5 billion. The rise in NBFIs was due primarily to

Asset Mix by Total Managed Fund

June 2012 June 2013 June 2012 June 2013 June 2012 June 2013 June 2012 June 2013

14.0 18.8 74.2 61.6 27.1 22.4 4.1 4.8

9.7 12.5 4.1 4.7 6.9 9.7 4.3 7.5

67.6 62.9 18.1 30.7 10.6 14.2 0.1 0.1

4.8 1.9 2.9 2.5 0.1 0.0 82.5 73.6

0.6 0.5 0.2 0.1 10.1 14.0 - -

. . . . . . . . . . . . . . . . . . - -

3.3 3.3 0.4 0.5 45.2 39.7 9.0 14.0

. . . Less than 0.05 percent

Special PurposeTrust Agency Other Fiduciary

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun-12 Jun-13 Jun-12 Jun-13 Jun-12 Jun-13 Jun-12 Jun-13

Cash and Due from banksDeposits in BanksFinancial Assets, netLoans, net Equity Investments (net)ROPA (net)Other assets

Special PurposeTrust Agency Other Fiduciary

Jun-12 Jun-13 Jun-12 Jun-13 Jun-12 Jun-13Cash and Due from banks 46.9 38.4 77.3 48.1 5.1 1.9 Deposits in Banks 6.5 8.8 2.7 10.2 1.1 2.4 Financial Assets, net 30.7 40.4 16.3 38.9 61.5 73.9 Loans, net 3.0 1.7 2.0 1.2 31.7 20.1 Equity Investments (net) 2.4 2.5 0.7 0.9 0.2 0.1 ROPA (net) 0.0 0.0 - - - - Other assets 10.5 8.1 1.0 0.7 0.4 1.6

100.0 100.0 100.0 100.0 100.0 100.0

3,025.87

3,039.32 Jun-12 Jun-13 Jun-12 Jun-13 Jun-12 Jun-13

Cash and Due from banks 1,378.0 1,129.3 34.4 16.6 2.3 1.2 Deposits in Banks 189.4 258.3 1.2 3.5 0.5 1.6 Financial Assets, net 902.8 1,186.4 7.3 13.4 27.6 48.7 Loans, net 87.7 51.3 0.9 0.4 14.2 13.3 Equity Investments (net) 69.3 74.1 0.3 0.3 0.1 0.1 ROPA (net) 0.2 0.2 - - - - Other assets 309.1 239.2 0.4 0.3 0.2 1.1

2,936.5 2,938.8 44.5 34.5 44.9 66.0

Figure 46. Asset Mix by Financial InstitutionUniversal and Commercial Banks Thrift Banks NBFIs

30%

40%

50%

60%

70%

80%

90%

100%

Dec 2011 Dec 2012 Dec 2011 Dec 2012 Dec 2011 Dec 2012

46.9 38.4 77.3 48.1 5.1 1.9

6.5 8.8 2.7 10.2 1.1 2.4

30.7 40.4 16.3 38.9 61.5 73.9

3.0 1.7 2.0 1.2 31.7 20.1

2.4 2.5 0.7 0.9 0.2 0.1

. . . . . . . . . . . . . . . . . .

10.5 8.1 1.0 0.7 0.4 1.6

. . . Less than 0.05 percent

UKBs TBs NBFIs

0%

10%

20%

30%

Jun-12 Jun-13 Jun-12 Jun-13 Jun-12 Jun-13

Cash and Due from banksDeposits in BanksFinancial Assets, netLoans, net Equity Investments (net)ROPA (net)Other assets

Universal and Commercial Banks

Thrift Banks NBFIs

27

Trust Operations

financial assets, specifically, debt securities of private corporations held by residents which accounted for 78.5 percent (P16.6 billion) of the increase in the assets of NBFIs. On the other hand, financial assets of TBs almost doubled from P7.3 billion to P13.4 billion, albeit not enough to dampen the P17.8 billion reduction in its SDAs lodged under cash and due from banks. Thus, despite cornering the biggest amount of trust assets, it was not the U/KBs that had the most influence on this period’s growth. Rather, it was the NBFIs that dictated the direction of trust assets weighed down only by TBs, being the only group that registered a decline for the period.

Trust Accounts Slowed Down As Deposits Gained MomentumBecause of the limited access to SDAs, investors were forced to lodge their finances in other forms

of investment, one of which being deposits in banks. This then led to reduced trust to deposit ratios among banks with trust licenses to 53.9 percent from 61.7 percent same period last year. This was mostly influenced by U/KBs as the group continued to dominate both the trust and deposit market.

FCDU Vs. TrustComparing FCDU assets of the Philippine Banking System (PBS) as against the FCDU assets held by trust entities, it appears that those under trust edge out those in the PBS, P3,039.3 billion to P1,434.4 billion. Despite being slightly more than double the FCDU assets, the combined net income of peso and FCDU trust assets at P3.2 billion is less than a fourth of FCDU net income of P20.2 billion.

Figure 47. Peso Domestic Deposit Liabilities (Net of Trust

Deposits) of Banks with Trust Functions vs. Trust Assets

(70.0)

(20.0)

30.0

80.0

130.0

180.0

230.0

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

June 2005

June 2006

June 2007

June 2008

June 2009

June 2010

June 2011

June 2012

June 2013


Deposit Liabilities (LHS) Trust Assets (LHS)

% Growth Deposits (RHS) % Growth Trust (RHS)

28

Stat

us R

epor

t on

the

Phili

ppin

e Fi

nanc

ial S

yste

m

Overview Banks authorized to engage in FCDU18 operations remained sound and stable for the first semester of 2013 on improved macroeconomic environment and strong performance of the Philippine banking system. Overall operations also yielded positive results in the first semester of 2013 as net profit posted a positive growth of 7.3 percent despite the prevailing low interest rates and relative strength of the peso against the US dollar. Improved cost-efficiencies and boost in non-interest income from the sale/redemption/de-recognition of non-trading financial assets buoyed earnings during the period.

The FCDU system accounted for 16.7 percent of total system wide assets, albeit smaller in share than year ago’s 18.8 percent resulting from the combined effect of the contraction of portfolio investments in held-to-maturity (HTM) financial assets of US$1.7 billion and of deposit liabilities of US$141.5 million. Nonetheless, total assets expanded by 2.7 percent year-on-year on relatively stable funding base and efficient allocation of resources to loan and investment portfolios.

Asset quality remained below one percent and liquidity asset cover of 30 percent on all foreign currency liabilities was not breached as liquid assets-to-deposit ratio (exclusive of ROP holdings) stood at 49.7 percent, albeit lower than year ago’s 51.5 percent.

As of end-June 2013, there were 78 banks consisting of 36 universal and commercial banks, 30 thrift banks and 12 rural and cooperative banks authorized to engage in Foreign Currency Deposit Unit (FCDU) operations but lower by two banks from a year ago due to the merger of Allied Banking Corporation and Philippine National Bank on 09 February 2013 and the closure of Cooperative Rural Bank of Bulacan effective on 23 May 2013. Only 69 out of 78 banks, however, had actual FCDU operations which may warrant future supervisory review.

FCDU operations remained profitableBanks under the FCDU system posted a positive bottom line for the period ended 30 June 2013 as net profit grew by 7.3 percent (US$76.8 million) to US$1.1 billion from US$1.0 billion at end-June 2012 (Figure 48). Converted into peso terms, FCDU net

profit accounted for 20.9 percent of the total net profit of the banking system (excluding rural and cooperative banks19).

Total operating income for the first semester of 2013 reached US$1.4 billion, higher by 3.9 percent or US$51.5 million from US$1.3 billion posted at end-June 2012 on account of the robust growth in non-interest income of 16.4 percent to US$0.7 billion from US$0.6 billion same period last year. The growth was mainly supported by gains on the sale/redemption/de-recognition of non-trading financial assets and liabilities amounting to US$138.6 million. Accordingly, the share of non-interest income to total operating income rose to 50.2 percent from 44.8 percent same period last year.

On the other hand, net interest income declined by 6.2 percent to US$0.7 billion on a low interest environment. In particular, the US$63.6 million or 24.5 percent decline in interest income from held-to-maturity (HTM) government securities significantly pulled the net interest income for the period. Similarly, net interest margin narrowed by 20 bps to 2.1 percent from 2.4 percent same period last year.

During the review period, non-interest expenses declined by 4.0 percent to US$0.2 billion on account of the combined 22.6 percent reduction in other administrative expenses and fees or commissions expenses. Accordingly, cost-to-income ratio improved to 15.2 percent from 16.6 percent same period last year.

On improved bottom line and cost-efficiency, return on assets (ROA) ratio fared better at 3.5 percent from 3.3 percent recorded at end-June 2012.

Foreign Currency Deposit Unit (FCDU) System

_____________________________________________________18 Prepared in compliance with Foreign Currency Deposit Act (Republic Act No. 6426). 19Data for the period end-March 2013

15.0

20.0

1,000.0 1,200.0 1,400.0

In Percent (%)In US$ Millions

Figure 48

The FCDU System: Results of OperationsFor End-Periods Indicated

-10.0

-5.0

0.0

5.0

10.0

15.0

(600.0)(400.0)(200.0)

-200.0 400.0 600.0 800.0

1,000.0

Interest Income (LHS)

Non-Interest Income (LHS)

Interest Expense (LHS)

Non-Interest Expense (LHS)

Net Profit (LHS)

June 2013 June 2012 YoY Change (RHS)

29

FCDU

System

Asset expansion continuedTotal assets expanded, albeit lower compared to a year ago, by 2.7 percent to $33.6 billion from $32.6 billion at end-June 2012. On average, FCDU assets expanded annually by 3.9 percent. Despite the fluctuations in levels, its long-term20 trend showed a general uptrend (Figure 49). During the review period, FCDU assets remained less than 20 percent of total assets of the banking system. Combined with other foreign currency denominated assets under foreign regular and foreign offices, the share barely rose to 21.6 percent. Meanwhile, FCDU assets of trust entities only accounted for 6.1 percent of total assets of all trust entities. Details are discussed under the Trust Operations section of the report.

On a per bank basis, BDO was still the largest of the FCDU banks in terms of asset size with an 18.5 percent ($6.2 billion) share, trailed by Metrobank at second place with a share of 9.5 percent ($3.2 billion). RCBC with a share of 8.2 percent ($2.8 billion) went up from fourth to third place this year.

The top 5 FCDU banks represented 50.9 percent ($17.1 billion) of the total FCDU system’s assets, higher than the 47.8 percent share a year ago (Figure 50).

Portfolio investments accounted for the bulk of FCDU assets

As of end-June 2013, financial assets other than loans, net, accounted for the lion’s share of total assets with 50.9 percent ($17.1 billion) from 51.0 percent ($16.7 billion) a year ago, followed by loans, net at 35.7 percent share ($12.0 billion) from 33.6 percent share ($11.0 billion), and cash/due from banks at 10.3 percent share ($3.5 billion) from 12.1 percent share ($3.9 billion). The remaining 3.1 percent share ($1.0 billion) came from other assets. FCDU investments accounted for 38.0 percent of the total portfolio investment of the banking system, down from year ago’s 40.8 percent.

The investment portfolio of banks authorized to engaged in FCDU operations are mostly placements in securities issued by residents, which grew year-on-year by 8.6 percent to US$11.8 billion from US$10.9 billion a year ago. These were mostly investments in ROPs (sovereign debt securities) at US$7.8 billion and higher by 6.0 percent from year ago’s ROP holdings of US$7.3 billion. Increased ROP holdings may be attributed to improved ROP prices and declining CDS rates of the Philippines at the heels of the series of sovereign ratings upgrade received from Fitch, Standard & Poor’s and JCRA during the first half of 2013 (Figure 52).

10.0

15.0

20.0

25,000.0

30,000.0

35,000.0

40,000.0 In Percent (%)In US$ Millions

Figure 49The FCDU System: Asset GrowthFor End-Periods Indicated

-15.0

-10.0

-5.0

0.0

5.0

-

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

19992000200120022003200420052006200720082009201020112012 June 2012

June 2013

Total YOY Growth HP Trend

Figure 50. Top 5 FCDU Banks (In Assets) As of end-June 2013

Bank Assets

(In $ Millions) % Share

BDO UNIBANK 6,205.0 18.5% METROBANK 3,194.5 9.5% RCBC 2,756.8 8.2% BPI 2,722.1 8.1% CITIBANK, N.A. 2,187.6 6.5% Sub-total 17,066.0 50.8% Others 16,450.9 49.2% Total 33,516.9 100.0%

Figure 51. FCDU Asset Mix For End-Periods Indicated

June 2012 2013 51.0% 50.9% 33.6% 35.7% 12.1% 10.3% 3.3% 3.1%

Financial Assets, net Loans, net Cash and Due from banks Other Assets

June 2013 $33.5 billion


200.0

250.0

300.0

350.0

In BPS

Figure 52. USD 5-YEAR CREDIT DEFAULT SWAP (CDS) SPREADSPHILIPPINES VS. ASEAN-4

0.0

50.0

100.0

150.0

THAI CDS SPREAD MALAYSIA CDS SPREAD INDONESIA CDS SPREAD

PHILIPPINE CDS SPREAD ASEAN-4

_____________________________________________________20Estimated using a Hodrick-Prescott filter to smoothen the growth series.

30

Stat

us R

epor

t on

the

Phili

ppin

e Fi

nanc

ial S

yste

m

By booking, these investments were mostly in available-for-sale (AFS) debt and equity securities at 70.6 percent or US$12.3 billion (up from year ago’s 58.4 percent or US$9.6 billion), followed by held-to-maturity (HTM) debt and equity securities at 15.0 percent (down from 26.5 percent) and held-for-trading (HFT) at 9.3 percent (up from 7.5 percent). The higher proportion of AFS and HFT financial assets during the review period is indicative of brisk FCDU trading activities.

Portfolio investments for non-resident issues accounted for a smaller share of 32.7 percent to US$5.7 billion from year ago’s 34.3 percent (almost same level). Overall level also expanded less than one percent year-on-year on improved market and investor sentiment.

Manufacturing, utilities and trade-related sectors were major beneficiaries of FCDU loans

FCDU loans expanded by 7.7 percent to US$12.0 billion from US$11.1 billion a year ago. Dollarization ratio remained minimal as FCDU loans only accounted for 2.4 percent (down from 3.1 percent a year ago) of the total loan portfolio. Including other foreign currency loans such as those booked under regular books and foreign offices, the ratio is still below five percent at 2.7 percent (down from 3.6 percent). These were channeled mostly to manufacturing (25.5 percent), utilities (20.0 percent) and trade-related sectors (13.7 percent). Except for manufacturing sector which posted a 0.5 percent reduction in loan intake, the latter two sectors registered respective robust expansions of 32.1 percent and 64.6 percent.

Loans to non-residents rose by 23.9 percent to US$667.0 million from US$538.3 million a year ago but their proportion to the FCDU total loan portfolio remained relatively small at 5.6 percent.

As to maturity, the bulk of these loans at 40.8 percent (dislodging loans with short-term maturity) were long-term, up from 32.1 percent a year ago. Improved macroeconomic conditions has significantly affected the maturity profile of FCDU loans as it shifted to longer-term from short-term during the review period on perception of lower foreign exchange and interest rate risks.

Asset quality of FCDU loans remained generally ideal for the first semester of 2013 as the non-performing loan ratio further improved to 0.1 percent from 0.4 percent a year ago.

Funding remained stable with strong deposit base and liquidity Deposit liabilities still funded the majority of total resources at 76.5 percent share ($25.6 billion), down from 78.9 percent ($25.8 billion) a year ago (Figure 53). This was followed by bills payable at 10.3 percent ($3.4 billion) up from 7.5 percent ($2.5 billion), bonds payable,net at 4.2 percent share ($1.4 billion), down from 4.4 percent share ($1.4 billion), due to head office/branches/agencies, net at 5.0 percent share ($1.7 billion), up from 3.4 percent share ($1.1 billion), capital accounts at 1.3 percent share ($0.4 billion), down from 3.3 percent share ($1.1 billion), and other liabilities at 2.8 percent share ($0.9 billion), up from 2.5 percent share ($0.8 billion).

Resident depositors accounted for 97.7 percent share of total deposit liabilities and the remaining 2.3 percent share was sourced from non-resident depositors. Deposits from residents went down by 0.8 percent to $25.0 billion from $25.3 billion while deposits from non-residents expanded by 13.9 percent (but the volume barely moved at $0.5 billion).

The liquid assets-to-deposits ratio (inclusive of ROP holdings) widened to 80.0 percent from 79.9 percent last year. However, liquid assets-to-deposit ratio (exclusive of ROP holdings) softened to 49.7 percent from 51.5 percent a year ago. Both ratios though were still above the 30 percent liquidity cover requirement on all foreign exchange liabilities. This developed despite the decrease in liquid assets (composed of cash and due from banks plus financial assets other than loans, net) by 0.4 percent to $20.5 billion, slower than the 0.5 percent decrease in deposit liabilities to $25.6 billion.

Figure 53. FCDU Funding Mix For End-Periods Indicated

June 2012 2013 78.9% 76.5% 7.5% 10.3% 4.4% 4.2% 3.4% 5.0% 3.3% 1.2% 2.5% 2.8%

Deposit Liabilities Bills Payable Bond Payable, net Due to HO/Br./Agencies/FCDU/RBU, net Capital Accounts Other Liabilities



nbb with quasi-banking functions (nbqbs)€¦ · non-bank financial institutions nbb with...

Documents