The banking sector booked an increase in its capital accounts recently due to higher investments delivering more trading gains.
According to recent data from the Bangko Sentral ng Pilipinas (BSP), the industry’s capitalization reached P2.35 trillion in April, which is 2.08 percent higher than P2.35 trillion a month ago and 8.9 percent more than P2.16 trillion the year earlier.
RCBC Chief Economist Michael L. Ricafort attributed this to the P52 billion month-on-month increase in total investments.
“This may reflect [an] increase in total Investments amid hefty gains in the local financial markets, especially trading gains in the fixed income market/bonds locally as well as in the US [United States] and in other developed markets,” Ricafort said.
Total investments reached P4.18 trillion in April, according to BSP preliminary data. These include financial assets and equity investment in subsidiaries, associates and joint ventures amounting to P3.92 trillion and P261.36 billion, respectively.
UnionBank Chief Economist Ruben Carlo O. Asuncion, meanwhile, said that it was “clear that banks have been responding to the [public health] crisis and have increased and adjusted their capital funding.”
“Furthermore, well-capitalized banks can serve as a source of strength for the economy in good times and bad,” Asuncion added.
He explained that research suggests that capital hike is associated with increase in loan growth and better capitalized banks expand lending more quickly.
However, he noted that demand for loans are currently low as government imposed stern measures to curb the spread of the coronavirus.
In April, the total loan portfolio of the banking system reached P10.73 trillion, which is slightly lower compared to P10.87 trillion a month ago.
With businesses scaling down operations, Ricafort said that demand for loans declined as well as trimming of capital expenditures.
“However, relaxation of the lockdown since the second half of May 2020 with some businesses allowed to gradually re-start/re-open could lead to some pick-up in economic activities as well as some pick up in loan demand,” he added.
The banking sector’s total assets also grew in April, reaching P18.66 trillion from P18.41 trillion a month ago.
Ricafort explained this was driven by the 1.8-percent month-on-month increase in total deposits amounting to P14.17 trillion in April.
“Many businesses, households, and other institutions mostly adopted a more conservative stance by increasing their cash positions and deposits,” he said.
This was to “better weather the unprecedented lockdown of the local economy as a matter of prudence,” Ricafort said.
The banking industry is holding cash amounting to P2.97 trillion as of end-April.
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