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PIA Press Release
2009/02/19

RP bank deposits stable at P2.9-T as BSP reduces rediscounting rate

By Renee F. De Guzman

Manila (19 February) -- Despite the current global financial turmoil, the Philippine banking industry continued to be stable and reported an increase of accumulated deposits by 13.4 percent to P2.9 trillion as of October last year.

The increase indicated that deposits liabilities are still the industry's major source of funding.

The Bangko Sentral ng Pilipinas attributes the increase in bank deposits to the industry's "inherent conservatism and domestic orientation" which allowed the banking sector to weather the global turmoil.

The reported increase in bank deposits was fueled mainly by the rise in demand and time deposits although there was a decline in savings deposits which accounted for almost half of the funding base.

These numbers the BSP said indicates that depositors still prefer the more traditional financial products and that banks get the bulk of their funds from accumulated savings.

As the savings rose, the total resources of the banking system rose by 13.9 percent to P5.7 trillion as of end December 2008 from the 2007 level of P5 trillion.

The increase was due mainly to the rise in the cash and loans accounts, with universal and commercial bank accounts for almost 90 percent of the total resources of the banking system.

The Philippine banking industry continued to be stable, well capitalized, and highly liquid during the last quarter of the year, according to the BSP's quarterly inflation report.

Moreover, the BSP said the Philippine banks continue to be capitalized above the Bank for International Settlements (BIS) standard and the BSP regulatory requirement, with bank balance sheets at their strongest since 1997 Asian financial crisis.

Also, the BSP said the banking system's asset quality continued to improve as the non-performing loan (NPL) ratio eased further to 4.5 percent as of end-October 2008 compared to 5.7 percent in 2007.

Compared to other countries in the region, the Philippine banking system's NPL ratio was lower than Thailand's 6.1 percent but higher than Indonesia's 3.9 percent, Malaysia's 2.4 percent and South Korea's 0.6 percent, the BSP said.

The lower NPL ratios in Malaysia and South Korea however, resulted from the creation of publicly-owned asset management companies (AMCs), which purchased the bulk of the NPLs.

In contrast, the Philippine banking industry managed to pare down its NPL ratio by selling off their bad loans to private asset managers with only minimal incentives and no cash assistance from government.

Meanwhile, the BSP cut recently its rediscount rate by 50 basis points and will raise the budget for lending facility for the second time in four months to spur lending amid the economic slowdown.

The liberalized rediscounting guidelines would take effect March 2. It will enable the banks to rediscount more loan papers and therefore, have access to additional funds that they can relend to the public.

The BSP also increased the loan value of eligible rediscounting papers from 80 percent to 90 percent but not to exceed the 70 percent value of the underlying collateral.

The interest on the rediscount loans would no longer be based on the 91-day Treasury bill (T-bill) rate and instead it would be pegged on the BSP's overnight reverse repurchase rate, less 50 basis points. (PIA La Union) [top]

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