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8 9Supervision and Examination Sector

Philiippine Banking System

The Philippine Banking SystemOverview

The Philippine banking system in 2015 faced a challenging environment with risks shifting from advanced economies to emerging market economies. Risks arising from the confluence of external factors such as diverging monetary policies and slowdown in global growth particularly, China’s economic activities affected banks’ profitability and financial position.

Nonetheless, the system capped the year with improved asset quality, strong capitalization and streamlined operations. Banks focused on expanding its market reach through the establishment of branches and the use of financial technology to boost deposit-taking and lending activities. To manage emerging risks consequently, banks rebalanced their asset portfolio and relied on more lending sustaining a positive performance.

A broad range of timely reforms were instituted as part of continuing and sequenced efforts to foster a regulatory environment that promotes prudent risk-taking of financial institutions while continuing to nurture creativity and responsiveness in the delivery of financial products and services.

Reforms for strengthening banks’ surveillance system, analytics and prudential policies were introduced

This year proved to be a challenging period as developments arising from diverging global growth and monetary policies as well as slowdown in China’s economic activities shaped the performance of the banking system. A proactive reform agenda centered on a three-fold framework aimed at: 1.strengthening the banking surveillance system; 2.enhancing analytical tools to timely identify financial stability risks; and 3.pro-active use of micro- and macro-prudential policies were put in place to serve as checks and balances so that risks are properly identified and managed.

To enhance financial surveillance, new reporting or disclosure requirements were institutionalized. Motor vehicle loans were disaggregated to auto loans and motorcycle loans (Circular No. 883 dated 10 July 2015). Universal and commercial banks (U/KBs) and thrift banks (TBs) were required to submit quarterly reports on residential real estate loans to support the generation of the residential real estate price index which serves as a valuable tool for assessing real estate and credit market conditions in the country (Memorandum No. M-2015-042 dated 02 December 2015).

Complementing these ongoing efforts to improve the quality and scope of financial data are major initiatives in the area of Basel III capital standards and other reforms, risk management standards, and corporate governance as well as advocacies on financial inclusion, consumer protection, and capital market reforms.

Basel III Domestic Systemically Important Banks (DSIBs, Circular No. 856 dated 29 October 2014) and leverage ratio (Circular No. 881 dated 09 June 2015) were adopted to improve banks’ loss absorbing buffer should there be sudden market distress.

Key enhancement on banks’ risk management were updated across functional supervisory areas such as guidelines covering the sale and marketing of financial products (Circular No. 891 dated 09 November 2015) and treasury activities of BSP supervised financial institutions (Circular No. 889 dated 02 November 2015).

Reforms on corporate governance, on the other hand, include guidelines on internal control and audit (both internal and external, Circular No. 871 dated 05 March 2015), new rules on related party transactions (Circular No. 895 dated 14 December 2015), revised compliance framework for quasi-banks (Circular No. 893 dated 16 November 2015), and stricter fit and proper rules governing the qualifications and appointment of directors and officers of the bank (Circular No. 889 dated 02 November 2015 and Circular No. 887 dated 07 October 2015). In terms of initiatives to develop a truly inclusive financial system, the baseline survey on financial inclusion was completed in the first quarter of 2015 and the National Strategy for financial inclusion was launched on 01 July 2015.

Lastly, reforms to hasten the development of the local capital market were centered on widening the array of financial products and services as well as investor protection e.g., segregation of customer funds and securities received by banks.

Banks continued to perform their basic mandate as intermediaries mobilizing savings for production of goods and services

Total assets of banks amounted to P12,085.7 billion as of end-December 2015, higher by P924.4 billion (8.3 percent) when compared to P11,161.3 billion in the same period last year. Asset expansion was

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Second Semester 2015

Office of Supervisory Policy Development

funded by gradual increase in deposits and capital5. Deposits grew annually by P708.9 billion (8.3 percent) to P9,232.0 billion mostly peso-denominated6 and sourced from residents7. Meanwhile, capital increased by P37.4 billion8 (2.7 percent) to P1,402.8 billion from fresh infusion and earnings generated for operations.

This broadly reflects the retail and domestic orientation of the funding source of the banking system which by far continue to support the financial stability objectives of the Bangko Sentral ng Pilipinas (BSP).

The size of deposit accounts as of end-December 2015 were mostly P5,000 and below (63.9 percent). Substantial proportions are also accounted for by deposit accounts with sizes of P15,000.01 to P40,000 (8.0 percent) and P5,000.01 to P10,000 (6.7 percent). Under the existing deposit insurance system9 in the Philippines, the maximum deposit insurance per depositor is set at P500,000.00. The deposit insurance covered 96.5 percent (49.0 million) of deposit accounts of the banking system.

Moreover, domestic geographical distribution of deposits as of end-September 2015 is predominantly in National Capital Region (NCR) particularly the cities of Makati at 24.8 percent (P2,163.3 billion), Quezon at 11.1 percent (P966.5 billion), and Manila at 10.7 percent (P936.1 billion). This spatial distribution

highlights concentrated bank coverage in urbanized areas and regional disparity of household income which underscores the need to pursue financial inclusion. The BSP has instituted advocacies on financial inclusion, financial literacy as well as consumer education and protection as a means to expand access points for financial services beyond bank branches through innovative channels as well as encourage the private sector to provide financial products and services that are responsive to the needs of the underserved and unbanked areas of the country10.

The subdued increase in deposits is deemed to be sustainable as the main driver of growth is traditional retail deposits (Figure 1). Retail deposits are inherently stable as they are not particularly sensitive to adverse changes in the bank’s profile. Deposits11 from individuals rose by P370.4 billion (9.2 percent) to P4,397.9 billion.

These funds were mainly deployed to finance lending and treasury or trading activities. Loans (net of allowance for credit losses) grew by P701.5 billion (12.4 percent) to P6,368.5 billion and total investments (net of allowance for credit losses) by P226.0 billion (9.2 percent) to P2,694.2 billion.

Banks’ loan portfolio (gross, net of amortization) was diverse across economic sectors but particularly concentrated in NCR12. Foreign currency denominated

3,741.7 4,027.5 4,397.9

2,162.3 2,563.1

2,761.1 787.8

973.7 1,038.2

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OthersResident BanksResident Trust DepartmentResident GovernmentResident Non-Financial Private CorporationsResident Individuals

*Line Item ‘Others’ includes Non-Residents. Data for Rural and Cooperative Banks are substituted with data as of end-September.

Figure 1Philippine Banking System: Components of Deposits*(As of End-Period Indicated, In Billion Pesos)

Year-on-Year Change

2013 2014 2015

Individuals 641.6 285.8 370.4

Non-Fin’l Private Corporation

609.1 400.7 198.1

Government 120.5 185.9 64.5

Trust Department 178.4 -61.3 16.0

Banks 27.4 26.2 40.7

Others 263.0 91.3 19.2

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5 Share of deposits to total assets was at 76.4 percent while share of capital was at 11.6 percent. 6 Share to total deposits was at 83.3 percent. Peso deposit liabilities was at P7,690.1 billion.7Share to total deposits was at 99.2 percent. Resident deposits was at P9,155.4 billion. 8 The increase in capital may be attributed to higher capital stock amounting to P669.6 billion (up by P59.2 billion, or 9.7 percent) and retained earnings and undivided profits

of P601.2 billion (up by P83.5 billion, or 16.1 percent). However, other comprehensive income (OCI) recorded a loss of P18.5 billion from a gain of P3.8 billion in 2014. This

loss is not yet realized and reflects the change in the value of tradable assets as a result of marking-to-market.9 Section 4 of Republic Act (RA) No. 9576 (1 June 2009) states that the “maximum deposit insurance coverage of P500,00.00) provide in Section 4(g) of RA No. 3591, as

amended herein, shall be paid by the Philippine Deposit Insurance Corporation (PDIC)”. 10 Other key strategic initiatives include: (1) launch of the national strategy for financial inclusion; (2) establishment of dedicated units for financial inclusion (Inclusive Finance

Advocacy Staff) and consumer protection (Financial Consumer Protection Department); (3) conduct of national baseline survey for financial inclusion; and (4) issuance and

implementation of consumer protection framework (Circular No. 857 dated 21 November 2014). 11 Largely savings deposit at 48.8 percent share to total deposits (P4,507.1 billion); resident savings deposit at 48.4 percent share (P4,470.0 billion); and resident peso savings

deposit at 40.5 percent (P3,742.5 billion). 12 On a regional basis, a substantial proportion of bank loans were distributed in NCR particularly in the cities of Makati at 54.6 percent; Manila at 7.7 percent; and Taguig at

6.1 percent as of end-September 2015 (most recent data).



loans of the banking system will be discussed fully at the separate standalone section of the Foreign Currency Deposit Unit system (FCDU) report.

Resident non-financial private corporations (50.5 percent share to total loans or P2,965.8 billion) continued to be the largest loan recipient, followed by resident individuals (10.5 percent share or P617.0 billion) and small and medium enterprises (SMEs, 6.9 percent or P403.8 billion).

When classified according to economic activity, the following activities had the largest loan intake: (1) real estate activities (17.7 percent or P1,121.3 billion); (2) wholesale and retail trade (13.0 percent or P819.5 billion); and (3) manufacturing (12.9 percent or P816.9 billion) (Figure 2). Rankings in terms of share to total bank lending were unchanged except for credit provided to manufacturing which ranked second last year (14.5 percent or P801.4 billion) and wholesale and retail trade activities ranked third (13.1 percent or P725.8 billion).

Loan quality improved while total loan portfolio continued its growth

Loans to real estate activities increased annually by P161.6 billion (16.9 percent) to P1,120.6 billion, wholesale and retail trade by P93.7 billion (12.9 percent) to P819.5 billion, and manufacturing

by P15.4 billion (1.9 percent) to P816.8 billion. Notwithstanding continued expansion in credit to industries, loan quality improved as gross non-performing loans (NPLs) remained low (Figures 2 and 3).

Reports on real estate exposures (REEs) similarly showed an annual growth of P294.8 billion (24.1 percent) to P1,516.3 billion. Of the REEs, real estate loans grew by P263.2 billion (25.2 percent) while real estate investments rose by P31.7 billion (17.8 percent) to P209.7 billion.

Meanwhile, consumer loans increased by P158.3 billion (17.5 percent) to P1,060.9 billion as of end-December 2015. The increase was driven mainly by higher loans for purchasing motor vehicles and residential real estate loans.13

Figure 4 and 4.1 imply that despite rising trend in real estate exposures (REEs) and consumer loans growth in non-performing loans (NPLs) were relatively marginal. Consequently, gross REE and consumer NPL ratios declined to 1.8 percent and 4.5 percent from 2.1 percent and 4.8 percent last year, respectively. On the whole, the banking system’s gross NPLs rose

slightly by 1.4 percent to P136.8 billion despite hefty increase in total loan portfolio (TLP) of P701.4 billion (12.0 percent) to P6,530.0 billion. Resulting NPL ratio registered continuous decline from its year ago ratio of 2.3 percent to 2.1 percent. The NPL coverage was also kept above 100 percent at 118.0 percent as of end-December 2015 with loan loss reserves (LLRs) at P161.5 billion.

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13 Motor vehicles grew by P10.4 billion (32.1 percent) to P303.9 billion while

residential real estate loans by P45.8 billion (11.5 percent) to P444.0 billion.

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Non-Performing Loans (NPL)

Figure 2Philippine Banking SystemLevel and Quality of Outstanding Loans For Production by Economic Activity(As of End-Period Indicated, Level in Billion Pesos)

2014 2014 2014 2015 2015 2015 2015Others Household Consumption Wholesale and Retail Trade Manufacturing Real Estate

Figure 3Philippine Banking System Selected Non-Performing Loans Ratio For Production by Economic Activity (As of End-Period Indicated, Ratio in Percent)

2.7

2.62.3

2.5

2.4 2.32.1

2.7 2.7

2.6 2.8 2.6 2.5

2.4 2.6 2.5 2.1

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3.1 3.0

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6.6 6.6 6.2 6.4

5.7 5.8

5.6

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-151.5

2.5

3.5

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5.5

6.5

Total Real Estate Manufacturing Wholesale and Retail Household Consumption

26.1 23.7 25.7 28.1 27.2 27.6 27.2

814.4

1,006.6 1,221.5 1,273.1

1,359.1 1,432.2

1,516.3 3.2

2.4 2.1 2.2 2.0 1.9

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REE Non-performing* Loans (NPL, LHS) Real Estate Exposures (REEs, LHS) Gross REE NPL Ratio

RHSLHS

*Comprised real estate NPL and past due real estate investments.

Figure 4Universal, Commercial and Thrift Banks: Real Estate Exposures (REEs)(As of End-Period Indicated, In Billion Pesos, Ratio in Percent)

37.5 42.2 38.5 43.4 47.7

545.9629.3 721.5

902.5

1,060.9 6.9 6.7

5.3 4.8

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Non-Performing CLs (LHS) Consumer Loans (CLs, LHS) CL NPL Ratio (RHS)

LHS RHS

Figure 4.1Universal, Commercial and Thrift Banks: Consumer Loans(As of End-Period Indicated, Level in Billion Pesos, Ratio in Percent)

12 1212



Meanwhile, real and other properties acquired (ROPA) has been on a downward trend the past few years, with the level at only P113.1 billion, compared to last year’s P121.1 billion. This resulted to a lower non-performing asset (NPA) level of P249.8 billion. NPA ratio of 2.0 percent, consequently, was better than last year’s 2.3 percent. Moreover, the NPA coverage ratio strengthened to 77.1 percent with NPA reserves reported at P192.5 billion. Overall asset quality thus improved with distressed assets ratio14 at 4.0 percent from 4.6 percent in the previous year on account of reduced levels of performing restructured loans and ROPA (Figure 5).15

Rural and cooperative banks (R/CBs) catered to the needs of agri-agra as well as MSME borrowers

Banks continued to provide credit to micro, small and medium enterprises (MSMEs) under R.A. No. 6977 (as amended by R.A. Nos. 8289 and 9501) as funds allocated to MSMEs summed up to P435.5 billion, relatively unchanged from last year’s P440.2 billion. This resulted to the banking system’s overall compliance ratio of 9.8 percent, slightly lower than the required 10 percent (8.0 percent for MSEs and 2.0 percent for MEs).

The banking system’s total credit allocation to medium enterprises (MEs) of P249.3 billion resulted to a compliance ratio of 5.6 percent which was above the required 2.0 percent. On the other hand, while the banking system’s funds allocated to micro and small enterprises (MSEs) totaling P186.2 billion led to a compliance ratio of only 4.2 percent, the R/CB industry’s 22.0 percent MSE compliance ratio far exceeded the 8.0 percent statutory floor.

The banking system was also able to set aside a total of P400.1 billion of loanable funds for agriculture and agrarian reform credit under R.A. No. 10000 (the Agri-Agra Reform Credit Act of 2009), higher than last year’s P358.7 billion. However, the banking system’s 14.4 percent compliance ratio for other agricultural credit was slightly below the required 15.0 percent. Moreover, its compliance ratio for agrarian reform credit was only 1.1 percent, falling short of the required 10.0 percent for agrarian reform credit.

In particular, while the U/KB and TB industries reported agri-agra compliance ratios below the statutory floor, R/CBs’ agrarian reform and other agricultural credit compliance ratios of 20.0 percent and 37.7 percent were far above the required ratios of 10.0 percent and 15.0 percent, respectively. As such, in spite of its minimal share in the banking system’s

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14 Distressed Assets refers to the sum of (a) Non-Performing Assets (NPA), (b) Current Restructured Loans (RL), and (c) Past Due But not Yet Non-Performing RL. Distressed

Assets Ratio refers to the ratio of Distressed Assets to the sum of TLP, gross and Total ROPA, gross (inclusive of Performing Sales Contract Receivables 15 Performing restructured loans declined by P2.2 billion (10.8 percent) to P18.1 billion and ROPA by P8.0 billion (-6.6 percent) to P113.1 billion.

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100

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Dec-12 Dec-13 Dec-14 Dec-15

Restructured Loans Non-Performing Loans (NPL), Other Loans Gross ROPA

259.5283.8 276.2 268.0

Figure 5Philippine Banking System: Loan Quality Trends(As of End-Period Indicated, In Billion Pesos)

Table 1Philippine Banking SystemCompliance with the Mandatory Credit Allocation to MSMEs 1/

As of End-December 2015 p/

Levels in Billion Pesos, Ratios in Percent

All Banks U/KBs TBs RCBs

Total Loan Portfolio Net of Exclusions 4,435.2 3,759.4 582.7 93.1

Minimum Amount Required to be Allocated for:Micro and Small Enterprises (MSEs) Credit (8%) 354.8 300.8 46.6 7.4 Medium Enterprises (MEs) Credit (2%) 88.7 75.2 11.7 1.9

Total 443.5 375.9 58.3 9.3

Compliance with Prescribed Allocation of Loan Portfolio to:MSEs

Total compliance for MSEs 186.2 125.5 40.3 20.4 Percentage of Compliance for MSEs 4.2% 3.3% 6.9% 22.0%

MEsTotal compliance for MEs 249.3 201.5 38.2 9.7 Percentage of Compliance for MEs 5.6% 5.4% 6.5% 10.4%

TotalTotal compliance for MSMEs 435.5 327.0 78.5 30.1 Percentage of Compliance for MSMEs 9.8% 8.7% 13.5% 32.3%

1/ Required under R.A. No. 6977, as amended by R.A. Nos. 8289 and 9501p/ Preliminary; Substituted data as of end-September 2015

Table 1.1Philippine Banking SystemCompliance with the Mandatory Allocation for Agrarian Reform/Other Agricultural Credit 1/

As of End-December 2015 p/

Levels in Billion Pesos, Ratios in Percent

All Banks U/KBs TBs RCBs

Total Loanable Funds Generated 2,577.3 2,447.4 92.3 37.7

Minimum Amount Required to be Allocated for:Agrarian Reform Credit (AGRA, 10% ) 257.7 244.7 9.2 3.8 Other Agricultural Credit (AGRI, 15%) 386.6 367.1 13.8 5.6

Total 644.3 611.8 23.1 9.4

Compliance with AGRATotal compliance with AGRA 29.0 19.2 2.2 7.5 Percentage of Compliance with AGRA 1.1% 0.8% 2.4% 20.0%

Compliance with AGRITotal compliance with AGRI 371.1 347.5 9.5 14.2 Percentage of Compliance with AGRI 14.4% 14.2% 10.2% 37.7%

TotalTotal compliance for AGRI-AGRA 400.1 366.7 11.7 21.7 Percentage of Compliance for AGRI-AGRA 15.5% 15.0% 12.6% 57.7%

1/ Required under R.A. No. 10000 (the Agri-Agra Reform Credit Act of 2009)p/ Preliminary; Substituted data as of end-September 2015



total loan portfolio, the rural and cooperative banking industry continued to cater to the needs of agri-agra as well as MSME borrowers. There was significant rebalancing of the banks’ portfolio investments to insulate profitability from mark-to-market (MTM) losses

Financial assets16 (gross, net of amortization), on the other hand, were largely in the form of debt securities at 88.617 percent (P2,377.5 billion). There were notable shifts in the investment portfolio of banks during the period as financial assets booked at fair value decreased. Financial assets Held-for-Trading (HFT) declined by P129.0 billion (40.0 percent) while those Designated at Fair Value through Profit and Loss (DFVPL) fell by another P2.0 billion (36.8 percent) (Figure 6).

These are non-trivial amounts because the declines represent 40.0 percent and 37.0 percent of their 2014 balances. In contrast, financial assets classified as Held-to-Maturity (HTM) increased by P315.6 billion (38.1 percent) to P1,136.7 billion.

This resulted to banks’ HTM almost approximating the balance of P1,040.9 billion in Available for Sale (AFS) financial assets. The significant re-balancing of the banks’ portfolio investments resulted to insulation from mark-to-market (MTM) loss brought about by short-term fluctuations in interest rates.

Portfolio investments were peso-denominated at 53.3 percent share (P1,323.5 billion) and 46.7 percent dollar-denominated (P1,158.4 billion). In terms of counterparty, Philippine national government issued securities represented a sizeable share of 65.4 percent (P1,624.0 billion), followed by resident corporations at 11.4 percent (P283.8 billion) and non-resident central government/banks at 10.1 percent (P249.6 billion).

Credit expansion led to marginal decrease in U/KBs’ Capital Adequacy Ratio (CAR)

Universal and commercial banks’ (U/KBs) capital adequacy ratio (CAR), on a consolidated and solo

bases, slid to 15.8 percent and 14.9 percent as of end-December 2015 from 16.2 percent and 15.2 percent last year. Majority of the CAR continued to be Common Equity Tier 1 (CET1)18, which represents the highest quality of bank capital, at P1,023.7 billion or 84.5 percent of total qualifying capital (TQC) on consolidated basis (Figure 7). The constant build-up in CET1 signals the industry’s continued efforts to improve CAR and withstand unexpected losses.

The Fitch Ratings, in its April 2016 Asia-Pacific (APAC) Banks Regulatory Compendium Report, cited that Philippine banks’ minimum CET1 ratios that are expected to settle within the 10.0 percent to 11.0 percent range (without a countercyclical buffer or CCYB) were second highest after Hong Kong, SAR which has been leading the way in the APAC region at CET1 10.0 percent to 12.0 percent range for larger banks.

The CAR, on a consolidated basis, was lower due to accelerated increase in credit risk-taking activities of the industry mostly for banks’ lending operations which carry risk weight of 100.0 percent. Credit risk weighted assets (RWA) rose by P863.8 billion (14.7 percent) to P6,754.5 billion and operational RWA at P61.0 billion (9.3 percent) to P713.9 billion while market RWA declined by P49.4 billion (-20.6 percent) to P191.0 billion (Figure 8). A large proportion of

987.8 1,040.9

821.1 1,136.7

322.3

193.3

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Investments in Non-Marketable Equity Securities (INMES)Fin'l assets Designated at Fair Value Through Profit or Loss (DFVPL)Unquoted Debt Securities Classified as Loans (UDSCL)Held-For-Trading (HFT)Held-To-Maturity (HTM)Available-For-Sale (AFS)

Figure 6Universal, Commercial and Thrift Banks: Components of Gross Portfolio Investments(As of End-Period Indicated, In Billion Pesos)

Year-on-Year Change

2014 2015

HFT 151.7 -129.0

HTM 473.6 315.6

AFS -343.3 53.1

DFVPL -1.0 -2.0

UDSCL -15.1 -16.1

INMES -1.6 0.2

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16 Includes U/KBs and TBs only.17 Share to total investments (net of allowance for credit losses).18 Common Equity Tier 1 (CET1), on consolidated and solo bases, were at 13.4 percent

and 12.4 percent, correspondingly.

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Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

CET 1 Others

As of end-December 2015CAR = 15.8%CET1 = 13.4%

Figure 7Universal and Commercial Banks: Capitalization Trends (As of End-Period Indicated, On Consolidated Basis, In Billion Pesos)

Majority of the CAR continued to be Common Equity Tier 1 (CET1) which

represents the highest quality of bank capital

14 1414



credit RWA was from on-balance sheet assets (95.0 percent) particularly, from loans to private corporations (57.3 percent), loans to individuals for consumption purposes (7.6 percent) and loans to micro, small and medium enterprise (MSMEs, 3.6 percent).

Alternatively, when TQC and RWA as of end-December 2015 are compared to levels recorded as of end-March 2014 when capital standards on Basel III was first adopted, growth in TQC was slower than the expansion in RWA (Figure 9).

Moving forward, the system’s capital base is seen to further strengthen with the adoption of Basel III capital standards on systemically important banks and leverage ratio.

Circular No. 856 dated on 29 October 201419 requires Domestic Systemically Important Banks (D-SIBs) to increase their minimum Common Equity Tier 1 (CET1) ratio by 1.5 to 3.5 percentage points (empty bucket) depending on which bucket they are classified. This will be on top of the existing CET1 minimum of 6.0 percent and the capital conservation buffer of 2.5 percent. DSIBs whose capital ratio fall below their corresponding regulatory minimum will be subject to constraints in the distribution of their income.

The Basel III Leverage Ratio20, as a supplementary measure to the risk-based capital requirements, is currently being implemented on a monitoring basis21

for U/KBs and subsidiary banks and quasi-banks (QBs). Defined as the ratio of the capital measure

(i.e., Basel III Tier 1 capital) and exposure measure22, this measure acts as a non-risk sensitive backstop to the CAR and is designed to restrict excessive leverage in the industry. The monitoring period will run until the fourth quarter of 2016 after which it will migrate as a Pillar 1 requirement by 1 January 2017.

Banks’ sustained positive bottom line was supported by interest-based earnings albeit marginally lower compared to last year

Net profit for the period ended 31 December 2015 was recorded at P134.6 billion buoyed by net interest income which increased by P28.2 billion (8.9 percent) to P344.9 billion. Interest income from lending to non-financial private corporations, households, and financial assets sustained reported growth23 (Figure 10).

Notably, interest earnings from auto loans to households and credit cards have significantly risen at a rate of 41.7 percent (P9.1 billion) and 31.3 percent (P6.9 billion) to P30.9 billion and P28.5 billion, respectively. Rising interest rates coupled with loans extended to households for the purpose of purchasing cars24 and increased use of credit card25 boosted interest income. It was also observed

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Credit Market Operational Total Qualifying Capital

Figure 8Universal and Commercial Banks: Components of Risk Weighted Assets (RWA) and Total Qualifying Capital (TQC)(As of End-Period Indicated, On Consolidated Basis, In Billion Pesos)

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19 D-SIBs are required to have put the necessary incremental CET1 by 01 January

2019. To provide further guidance, the new BSP regulation sets a step-ladder type

threshold for the CET1 of D-SIBs starting 01 January 2017. Capital buffer add on is

seen at 2.5 percent at end-point for Pillar 1 requirements.20 Circular No. 881 dated 9 June 2015.21 During the monitoring period, the BSP shall continue to assess the appropriateness

of the 5.0 percent threshold, the calibration as well as the treatment of the

components of the leverage ratio. 22 The exposure measure is the sum of the following exposures: (a) on-balance

sheet exposures; (b) derivative exposures; (c) securities financing transaction (SFT)

exposures; and (d) off-balance sheet (OBS) items.23 Interest-based earnings grew by P41.6 billion (10.3 percent) to P447.3 billion.24 Circular No. 883 dated 10 July 2015. Starting September 2015 auto loans was

renamed as motor vehicle loans. Motor vehicle loan is further subdivided as to auto

and motorcycle. Auto loans increased by P20.6 billion (7.6 percent) from September

2015 to P293.4 billion. Loans to purchase motorcycle fell by P307.6 million (-2.9

percent) from September 2015 to P10.4 billion.

25 Credit card receivables grew annually by P14.9 billion (9.1 percent) to P179.3

billion

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Total Qualifying Capital (TQC) Risk-Weighted Assets (RWA)

Figure 9Universal and Commercial Banks: Total Qualifying Capital and Risk Weighted Assets(As of End-Period Indicated, On Consolidated Basis, 2014Q1 = 100, In Index Points)

98.4 117.8 132.9 17.3

31.7 44.3 43.8 39.1

35.6 14.1

21.8 30.9

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28.5

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550

2013 2014 2015

Loans to Private Non-Fin'l CorporationHeld-To-Maturity Fin'l AssetsAvailable-For-Sale Fin'l AssetsAuto LoansCredit CardOther Interest ExpenseSavings DepositTime DepositOther Interest Income


Figure 10Philippine Banking System: Components of Net Interest Income*(For the Period Ended, In Billion Pesos)

Year-on-Year Change

2014 2015

Non-Fin’l Private Corporation

19.4 15.1

HTM 13.9 12.5

AFS -10.1 -3.5

Auto Loans 8.4 9.1

Credit Card -1.3 6.9



that interest revenues from Held-To-Maturity (HTM) financial assets grew sharply by 39.5 percent (P12.5 billion) to P44.3 billion reflecting banks’ increased holdings of HTM financial assets.

Income from treasury activities, however, declined as gains from the sale of trading securities, non-trading financial assets (Available-For-Sale or AFS), HTM, and designated at fair value through profit of loss (DFVPL), and non-financial assets (i.e. real and other properties acquired (ROPA) decreased broadly at the onset of rising domestic interest rates (Figure 10.1).

Non-interest expense, on the other hand, rose by P17.7 billion (6.1 percent) to P305.6 billion from last year’s level of P287.9 billion due to increased payments of compensation/fringe benefits26 and other administrative expenses27. Of the administrative expenses, rent28 and Philippine Deposit Insurance Corporation (PDIC) insurance29 expenses registered considerable increases coinciding with the industry’s expanding bank network (i.e. branches, micro-banking offices and other bank offices) and consequently, deposit-taking activities. Resulting cost-to-income30 (CTI) ratio picked up to 64.3 percent (from 62.3 percent last year, Figure 11) with private rural and commercial banks (R/CBs) and government TBs registering high ratios of 88.8 percent and 81.2 percent, respectively.

Other profitability indicators such as return on assets (ROA), return on equity (ROE), and net interest margin (NIM) similarly softened to 1.1 percent, 9.3 percent, and 3.2 percent from 1.3 percent, 10.8 percent, and 3.3 percent, respectively. Private universal banks (UBs)

posted the highest ROA at 1.3 percent. Government universal and commercial (U/KBs) banks provided better ROE at 15.2 percent while private TBs posted the highest NIM at 5.6 percent.

Off-balance sheet assets of banks posted positive year-on-year growth

The banking system’s total contingent accounts (off-balance sheet) stood at P6,367.2 billion, 1.2 percent higher than last year’s level of P6,292.4 billion (Figure 12). The growth and level of the banking system’s contingent accounts were paler compared to on-balance sheet activities. Selected off-balance sheet assets of banks consisted of derivatives instruments (40.5 percent), trust department accounts (40.2 percent), commitments (13.4 percent), bank guarantees (3.9 percent) and trade related accounts (2.1 percent). Trust department accounts will be discussed separately in a stand-alone section of the report on Trust and Other Fiduciary Services.

The expansion was driven mainly by increase in commitments and bank guarantees activities of banks which both reported a year-on-year expansions of 11.1 percent and 13.1 percent, respectively. These transactions were mostly needed by U/KBs.

Global demand for locally produced goods resulted in positive outturn in trade-related contingent accounts

The banking system’s total trade-related contingent accounts stood at P130.6 billion, 18.0 percent higher than last year’s level of P110.7 billion on account of global demand for locally produced goods. Trade-in goods was at a surplus amounting to US$0.6 billion (Figure 13). As to Philippine export performance by country in 2015, Japan (including Okinawa) accounted for 21.1 percent to total exports. It remained as the country’s top destination of exports with revenue amounting to

___________________________

26 Increased annually by P9.1 billion (8.7 percent) to P113.2 billion. 27 Grew year-on-year by P6.8 billion (5.5 percent) to P131.1 billion.28 Annual growth was at P1.2 billion (8.3 percent) to P15.3 billion. 29 Recorded increase was at P1.8 billion (12.1 percent) to P16.9 billion.30 Ratio of non-interest expenses to total operating income.

59.4 65.2 69.9

62.4

19.5 17.0

8.6

20.2 11.7

6.0

10.1 4.4

18.4

5.6 7.4

0

20

40

60

80

100

120

140

160

180

2013 2014 2015

Others

Foreign Exchange Profit/(Loss)

Gains/(Losses) on Fin'l Assets & Liabilities Held-For-Trading (HFT)

Gains/(Losses) from Sale/Derecognition of Non-Financial Assets

Gains/(Losses) from Sale/Redemption/Derecognition of Non-Trading Financial Assets and Liabilities

Fees and Commissions


Figure 10.1Philippine Banking System: Components of Non-Interest Income*(For the Period Ended, In Billion Pesos) Year-on-Year Change

2014 2015

Fees and Commissions 9.8 4.6

Gains/(Losses) from Sale/Redemption/Derecognition of Non-Trading Fin’l Assets and Liabilities

-68.7 -2.5

Gains/(Losses) from Sale/Redemption/Derecognition of Non-Fin’lAssets

133.4 -8.5

Gains/(Losses) on Fin’l Assets & Liabilities HFT 66.8 -5.7

Foreign Exchange Profit/(Loss) -69.4 1.7

Figure 11Philippine Banking System: Profitability and Efficiency Indicators(In Percent)

0.8 1.2 1.4 1.5 1.61.6

1.3 1.2

6.9

10.8 12.2 12.1

12.413.3

10.8 9.6

4.4

4.4 4.4 3.8 3.6 3.33.3 3.3

74.265.8 63.6 65.0

63.560.5

62.3 64.3

0

10

20

30

40

50

60

70

80

0

2

4

6

8

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16

Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

Return on Assets (ROA, LHS) Return on Equity (ROE, LHS)Net Interest Margin (NIM, LHS) Cost to Income Ratio (CTI, RHS)

(LHS) (RHS)

Figure 12Philippine Banking System: Comparative AssetsFor End-Periods Indicated, In Billion Pesos

2015 2014 YOY Change (%)

On Balance Sheet 12,085.7 11,161.3 8.3Off Balance Sheet* 6,367.2 6,292.4 1.2

*Includes trust assets of bank (P2,441.1 billion) but discussed separately in a stand-alone section.

End-December

16 1616



$12.4 billion, followed by the United States of America (including Alaska and Hawaii) at $8.8 billion or 15.0 percent of total earnings and People’s Republic of China at $6.4 billion or 10.9 percent.

The bulk of the total trade-related contingent accounts of the banking system was accounted for by foreign commercial letters of credit (LC) outstanding at P75.9 billion or 58.1 percent from P84.5 billion or 76.4 percent last year. These were foreign LCs of universal and commercial banks which held the lion share of 98.6 percent of the banking system’s total foreign LCs. The rest, in descending order, went to shipside bonds and airway bills at P28.6 billion or 21.9 percent, export LCs at P15.2 billion or 11.7 percent, and domestic commercial LCs confirmed at P10.9 billion or 8.3 percent.

Stand-by letters of credit held majority of bank guarantees

Bank guarantees stood at P245.2 billion, 13.1 percent higher than last year’s level of P216.8 billion. Bank guarantees were either stand-by LCs or outstanding guarantees issued. Stand-by LCs made up 88.5 percent of total bank guarantees. Most of bank guarantees were accounted for by universal and commercial banks which continued to hold the lion’s share of bank guarantees at P244.5 billion or 99.7 percent.

Credit card lines represented a large portion of total bank commitments

Total commitments31 rose to P854.9 billion or 11.1 percent growth year-on-year and were mostly issued by universal and commercial banks. Meanwhile, bank commitments on credit card lines32 posted a decline of 4.5 percent to P448.2 billion from P469.3 billion last year. These credit card lines likewise accounted for 52.4 percent of total commitments.

Notional value of derivatives declined on the back of developments in the global economic environment

Total notional value of derivatives transactions maintained growth in 2015 which recorded at P2,579.2 billion. This was lower than P2,666.0 billion last year due to slump in derivatives forwards. Banks use derivatives to manage market risk on their exposures as well as hedge exposures of their clients.

On trend, the more sophisticated and bigger universal and commercial banks captured the lion’s share of the local derivatives market.

Foreign exchange contracts still had the largest share of the local derivatives market at P1,618.6 billion or 62.8 percent of the total derivatives. Other derivatives in the Top 3 were interest rate contracts at P956.1 billion or 37.1 percent and credit derivatives at P4.5 billion or 0.2 percent.

Financial services became more technology-efficient and client-centric

The liberalization of the banking industry following the enactment of the amendments to the Foreign Banks Law (Republic Act No. 7721, as amended by Republic Act No. 10641) in 2015 and the Rural Bank Act of 1992 (Republic Act No. 7353, as amended by Republic Act No. 10574) in 2013, together with the increasing demands of technological innovation, urbanization33 and regional developments i.e., ASEAN

-50

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Jun-14

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Sep-1

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5

Figure 13Merchandise Exports and Imports, and Balance of TradeFor End-Periods Indicated

Balance of Trade (US$ million, lhs) Merchandise Exports (y-o-y growth, rhs)Merchandise Imports (y-o-y growth, rhs)

In US$ Millions (LHS) In Percent (RHS)

Source of Data: Philippine Statistics Authority (PSA)

___________________________

31 Normally refer to banks’ underwritten accounts unsold, committed credit lines

for commercial papers issued, credit card lines and other types of off-balance sheet

commitments. 32 Credit card lines are unused portions of all commitments to extend credit both

to individuals for household, family and other personal expenditures as well as to

commercial and industrial enterprises through credit cards. 33 The United Nations Department of Economics and Social Affairs Population Division

estimated that 72.3 percent of the population will be in urbanized areas by 2020

(Source: Asian Development Bank (2014). Republic of the Philippines: National Urban

Assessment. Asian Development Bank: Mandaluyong City)



banking integration framework (ABIF), are gradually shaping the existing banking landscape into a more streamlined, technology-efficient and client-centric financial services industry.

As of end-December 2015, there was a notable further consolidation in the banking system as the number of operating banks (measured by the number of head office) went down to 632 banks from 648 banks in 2014 (Figure 14). This was 1.6x lower than the peak of 996 banks in 1998 when the BSP started introducing its merger and consolidation policy in the market. On the other hand, bank network (measured by branches, microbanking offices and other bank offices) expanded

by 411 additional bank offices to 10,124 branches in 2015 (vs. 9,713 in 2014) and this was 1.5x wider than the network of 6,650 bank offices recorded in 1998.

The entire banking network (head office and other offices) represented more than a third at 37.9 percent (up from 36.8 percent last year) of all BSP supervised financial institutions (BSFIs). (Appendix 73 and Figure 16.1)

At end-2015, the total number of operating banking units stood at 10,756 (inclusive of four offshore banking units (OBUs) and 13 representative offices abroad of domestic banks) from 10,361 at end-2014.

996976

947929

912 899 893 879862

847818

785758

726696

673648

632

600

650

700

750

800

850

900

950

1,000

5,5006,0006,5007,0007,5008,0008,5009,0009,500

10,00010,50011,00011,50012,000

1998* 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Head Offices (RHS) Branches (LHS)

No. of Head Offices (RHS)

Figure 14Philippine Banking System: Total Banking UnitsFor End-Periods Indicated

* BSP's merger and consolidation policy began in 1998 with the issuance of Circular No. 172 dated 03 September 1998.

No. of Branches (LHS)

Figure 15Philippine Banking System

For End-Periods Indicated

TotalHead Office

Branches/Other Offices

TotalHead Office

Branches/Other Offices

All Banks 10,361 648 9,713 25,936 798 25,138

Universal and Commercial Banks 5,833 36 5,797 6,060 40 6,020

Domestic Banks 5,692 20 5,672 5,924 20 5,904

Private Banks 5,200 17 5,183 5,400 17 5,383

Government Banks 492 3 489 524 3 521

Foreign Banks 141 16 125 136 20 116

Foreign Bank Branches 38 14 24 33 18 15

Foreign Bank Subsidiaries 103 2 101 103 2 101 Thrift Banks 1,920 69 1,851 2,086 68 2,018

Financial Institution Linked Banks 947 19 928 974 18 956 Domestic Bank Controlled 913 15 898 939 13 926 Domestic NBFI Controlled 21 1 20 21 1 20 Foreign Bank Controlled 10 2 8 13 3 10 Foreign NBFI Controlled 3 1 2 1 1 0

Non-Linked Thrift Banks 973 50 923 1,112 50 1,062 Rural and Cooperative Banks 2,608 543 2,065 2,610 524 2,086

Rural Banks 2,134 507 1,627 2,068 487 1,581 Microfinance-Oriented Rural Banks

331 7 324 395 8 387 Cooperative Banks 143 29 114 147 29 118

End-Dec 2015

Bank Category

End-Dec 2014

Physical Composition: Share to Total Banking Offices

5.6% 6.3% 10.6% 10.8%

83.8% 82.9%

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

End-Dec 2014 End-Dec 2015

In Percent Head Office

Universal andCommercial Banks

Thrift Banks

Rural andCooperative Banks

Figure 15.1

59.7% 59.5%

19.1% 19.9% 21.3% 20.6%

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

End-Dec 2014 End-Dec 2015

In Percent Branches/Other Offices

Universal andCommercial Banks

Thrift Banks

Rural andCooperative Banks

18 1818



Non-bank financial institutions34 held the remaining 62.1 percent (slightly down from 63.2 percent in 2014).

Overall, there were 28,374 BSFIs operating in the Philippines from 28,135 BSFIs last year.

Among major bank categories, universal/commercial banks (U/KBs) continued to dominate with the largest branch distribution network at 59.5 percent of the total number of branches/other offices. (Figure 15, Figure 15.1, Figure 16.2 and Figure 16.3)

For banks domiciled onshore, domestic banks by far outnumbered the foreign banks with 608 head offices vis-à-vis the 24 foreign bank branches35 and subsidiaries operating in the country. (Figure 16.4)

In terms of asset size, the Top 5 banks in the country held the bulk of the banking system’s resources

The Top 5 banks36 in the country – composed of four universal banks and one government bank – accounted for 53.6 percent (unchanged from last year) of the total assets of the Philippine banking system. In terms of deposit share and capital accounts, these banks also represented a sizeable proportion at 57.0 percent (up from 56.5 percent last year) and 50.3 percent (up from 46.0 percent last year), respectively.

Bank coverage remains predominant in NCR and other urbanized areas in terms of income class and regional profile

In terms of distribution of banking offices per city or municipality income class, banks are predominant in the National Capital Region (NCR) with 3,379 head offices/branches. Outside NCR, banking offices are mostly found in 1st class cities (2,071 head offices or branches from last year’s 1,779 head offices branches) and municipalities (1,878 head offices or branches from last year’s 1,525 head offices or branches). Notably, universal and commercial banks have expanded their reach in areas considered as the home turf of rural banks, i.e., in 1st to 3rd class

Fig. 16.4 Domestic Banks vs. Foreign Bank Branches and Subsidiaries

172.8% 64

10.5%

52486.2%

30.5%

Universal andCommercial BanksThrift Banks

Rural andCooperative BanksGovernment Banks

608 Head Offices

Domestic Banks

Figure 16Philippine Banking SystemComparative Share to Physical NetworkAs of End-December 2015

10,743 37.9%17,614

62.1%

170.1%

Fig. 16.1 Philippine Financial System

BanksNon-BanksOBUs & Foreign ROs Abroad of Domestic Banks

6.3%10.8%

82.9%

Fig. 16.2 Major Bank Categories

UKBs TBs RCBs

89%

2%

Private Domestic BanksGovernment BanksForeign Bank Branches and Subsidiaries

8.6%

2.3%

89.1%

Fig. 16.3 Composition of UKBs

2083.3%

416.7%

Universal/CommercialBanksThrift Banks

24 Head Offices

Foreign Banks

___________________________

34 The BSP also supervises non-banks with quasi-banking functions and/or trust

license, financial allied subsidiaries/affiliates of banks and quasi-banks, non-stock

savings and loan associations, pawnshops and other financial institutions which

under special laws are subject to BSP supervision. Of these financial institutions,

pawnshops held the lion’s share at 60.8 percent or 17,238 offices at end-December

2015 (down from 61.9 percent or 17,422 pawnshops last year).35 Includes the four foreign bank branches whose applications were approved under

R.A. No. 10641 (An Act Allowing the Full Entry of Foreign Banks in the Philippines,

Amending for This Purpose R.A. No. 7721): Sumitomo Mitsui Banking Corporation

(SMBC); Cathay United Bank Co., Ltd. Manila Branch (CUB Manila Branch); Shinhan

Bank Manila Branch; and Industrial Bank of Korea Manila Branch. All four banks

commenced operations in the Philippines in the second half of 2015.36 Based on Published Balance Sheet as of 31 December 2015



Figure 17Philippine Banking System

As of 31 December 2015

1 2 3 4 5 6 1 2 3 4 5

Banking System 3,379 2,071 459 781 285 96 36 1,878 434 371 349 92 7,331 46 10,756 Universal/Commercial Banks 2,760 1,225 248 438 149 41 7 657 73 41 21 8 3,254 46 6,060 Thrift Banks 544 480 121 181 62 18 4 393 76 70 47 8 1,542 2,086 Rural/Cooperative Banks2 75 366 90 162 74 37 25 828 285 260 281 76 2,535 2,610

1 Inclusive of Head Office, Regular and Microfinance-Oriented Branch2 Inclusive of Microfinance Rural Banks

Number of Banking Offices1 per City/Municipality Income Class

479 346 82 51

NCR

Outside NCRTotal

(Outside NCR)

AbroadGrand TotalCebu and

Davao City

Other Cities Municipalities

municipalities with a total of 771 banking offices (up from last year’s 680 banking offices) vis-à-vis R/CBs’ network of 1,373 banking offices (up from 1,026 banking offices). Network expansion in these areas is indicative of banks’ initiatives to support inclusive growth by providing access to finance for all Filipinos, regardless of their socio-economic status. (Figure 17)

The NCR has 3,379 banking offices or 31.5 percent of total banking offices nationwide. Other regions that registered hefty shares are: CALABARZON or Region IV-A with 1,621 banking offices or 15.1 percent share; Central Luzon (Region III) with 1,088 banking offices or 10.2 percent share; Central Visayas (Region VII) with 620 banking offices or 5.8 percent share; and the Ilocos Region (Region I) with 486 banking offices or 4.5 percent share. These five leading regions accounted for 67.2 percent of the total banking network nationwide (Figure 18 and Appendix 4).

Bank coverage in most parts of the country’s cities and municipalities range between 60 to 79 percent as of end-December 2015, with dense concentration in highly urbanized areas. (Figure 18.1)

The NCR had 100 percent bank coverage which means all 16 cities and 1 municipality in the NCR have banking offices. A close second is CALABARZON (Region IV-A) with 94.4 percent bank coverage (down from 95.1 percent). Rounding up the top five are: Central Luzon (Region III) at 93.8 percent (slightly up from 93.1 percent); Western Visayas (Region VI) at 82.2 percent (up from 78.9 percent); and Cagayan Valley (Region II) at 81.7 percent (unchanged from last year). These regions are heavily populated and mostly urbanized, making them viable hubs for business and other industries.

Conversely, low bank coverage has been noted in the Autonomous Region of Muslim Mindanao (ARMM) with merely 8.5 percent of the region’s cities and municipalities having banking offices. This was followed by Eastern Visayas (Region VIII) at 30.1 percent, Cordillera Administrative Region (CAR) at 32.5 percent, and the Zamboanga Peninsula (Region IX) at 37.5 percent. Establishing bank branches in these parts of the country remains a challenge due to the generally low population density, geographic inaccessibility, and prevailing geo-political and socio-economic situations in these localities.

Universal banks have strong presence in the Middle East and in the Asia-Pacific region

Overseas bank branches were clustered mostly in the Middle East followed by Asia-Pacific, North America and Europe (Figure 19). These areas similarly had larger concentrations of overseas Filipinos (OFs). Bank branches in the Middle East stood at 20 offices (same as last year), representing 43.4 percent of total branches abroad. Banking offices in the Middle East are mostly remittance desk offices (14 offices)37, reflecting the strong remittance inflows from these areas.

___________________________

37 Section X154 of the Manual of Regulations for Banks (MORB) sets down the rules for the establishment of branches or other offices abroad by domestic banks. These offices

cover not only branches but also agencies, representative offices, remittance centers, remittance desk offices and other offices which are integral in the operations of the

parent domestic bank.

Figure 18Philippine Banking SystemRegional Distribution of Banking Offices:Top Five RegionsAs of End-December 2015

TotalWith

Banking Offices

Without Banking Offices

Total Banking Offices

Head Office

Branches

Grand Total 10,756 632 10,124 Nationwide 1,634 1,043 591 10,710 632 10,078 National Capital Region (NCR) 17 17 0 3,379 84 3,295 Region IV-A CALABARZON 142 134 8 1,621 114 1,507 Region III Central Luzon 130 122 8 1,088 87 1,001 Region VII Central Visayas 107 73 34 620 32 588 Region I Ilocos 125 91 34 486 39 447

Number of City/Municipality Number of Banking Offices

Figure 18.1Philippine Banking SystemBanked and Unbanked AreasAs of End-December 2015

Underbanked or unbanked areas

Banked Areas

20 2020



In the Asia-Pacific region, domestic banks have set up mostly regular branches or representative offices (17 total banking offices or 37.0 percent of total branches abroad).

These banking offices are strategically located in major economic hubs in the Asia-Pacific region such as Japan, Singapore, Hong Kong, and Korea. (Figure 20)

The financial industry also displayed strong support to the funding needs of its clients with improved customer ratio

The country’s bank density ratio, as measured by banking offices per city/municipality, stood at seven banks (up from last year’s six banks). Customer ratio slightly improved by 0.7 percent to 9,614 persons served per banking office from 9,682 persons per each banking office in end-December 2014. Banks’ density ratio mirrored the population dispersion pattern which is concentrated in highly populous, urbanized and higher income areas of the archipelago (Appendix 5).

Banks maximized the delivery of financial services through network expansion and by investing in technology

Banks maximized the delivery of financial services to their chosen clientele by expanding their branch network and investing in electronic banking (e-banking) technology.

E-banking platforms such as electronic wallet (G-Cash/Smart Money) are being offered by 58 banks (down from last year’s 62 banks), hybrid mobile/internet via BancNet-MegaLink switch by 52 banks (up from 47 banks), internet banking by 42 banks (down from 44 banks), cash/remittance cards by 29 banks (up from 26 banks), and mobile banking by 27 banks (down from 33 banks). (Figure 21 and Appendix 7)

The use of automated teller machines (ATMs) also remained a key platform in the efficient delivery of financial products and services. The system’s ATM network grew by 1,622 units (10.3 percent) to 17,317 units from year ago’s 15,695 units. These ATMs were mostly on-site ATMs at 56.3 percent

Figure 19Philippine Banking SystemDistribution of Offshore Banking OfficesAs of End-December 2015

Middle East 43.4%

Asia-Pacific 37.0%

Europe 8.7%North America

10.9%

`

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0

People's Republic of China

Korea

Taiwan

Hong Kong

Singapore

Japan

% to Total Banking Offices in Asia-Pacific Region

Figure 20Philippine Banking SystemBanking Offices in the Asia-Pacific RegionEnd-December 2015

11.8%

17.6%

5.9%

11.8%

35.3%

17.6%

33

16

44

13

47

10

20

26

1

62

27

19

42

15

52

15

20

29

1

58

0 10 20 30 40 50 60 70

Mobile Banking

Phone banking

Internet Banking

Mobile Apps

Mobile/ Internet thru Bancnet & Megalink Switch

Bancnet POS Cash-out Aggregator/Acquirer

ETFPS (BIR)

Cash Card/Remittance Card (EMI)

Remittance Only

E-Wallet (G-Cash/Smart Money)

Figure 21Philippine Banking SystemNumber of BSFIs with E-Banking and E-Money ApplicationsFor End-Periods Indicated

Dec 2014Dec 2015



___________________________

38 Off-site ATMs or stand-alone ATM units were mostly found in university belts, convenience stores, private-public offices, shopping malls, LRT/MRT stations, airports, seaports

and bus terminals.

(down from last year’s 57.8 percent). Off-site ATMs, nonetheless, grew at a faster rate by 14.1 percent year-on-year compared to on-site ATM’s annual growth of 7.6 percent (Figure 22). The faster growth in off-site ATMs may be attributed to the BSP’s policy (BSP Circular No. 735 dated 16 August 2011) to remove the restriction on the itinerary of mobile ATMs which was previously confined to Metro Manila alone, giving banks greater flexibility to utilize innovative delivery channels to provide financial services to more Filipinos.

The number of banks with ATM network reached 114 (from 115 banks at end-December 2014), composed of 106 domestic banks and eight foreign bank branches and subsidiaries.

Many banks saw the need to merge with, or acquire, other banks as part of their market strategy

Industry consolidation continued in 2015 with five cases of mergers and acquisitions that transpired during the year (Figure 23).

Meanwhile, the banking landscape was also characterized by the exit of weaker players with the closure of seven banks (six rural banks and one thrift bank) in the second semester of 2015. This brought the total number of closed banks during the year to 15 banks (Figure 24).

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015On-site 6.7 -1.2 6.1 20.1 12.0 9.4 4.5 6.0 5.9 7.3 7.2 10.2 16.4 6.9 7.6Off-site 16.2 45.0 4.5 18.1 17.9 13.4 3.5 13.8 17.1 18.1 26.4 22.0 22.5 9.5 14.1Total 8.6 8.3 5.7 19.6 13.6 10.5 4.2 8.2 9.3 10.8 13.8 14.7 18.9 8.0 10.3

-5.00.05.010.015.020.025.030.035.040.045.050.0

Grow

th R

ate

(%)

Figure 22Philippine Banking SystemComparative ATM GrowthAs of End-Years Indicated

Figure 23Philippine Banking SystemMerger/Consolidation/AcquisitionEnd-December 2015

Bank Category

Involved EntitiesBank

CategoryEffectivity Date

1 China Bank Savings, Inc. TB China Bank Savings, Inc. TB 17-Dec-15Planters Development Bank, Inc. TB

2 Producers Savings Bank Corporation TB Producers Savings Bank Corporation TB 29-Dec-15Rural Bank of Cainta, Inc. RB

Bank Category

Constituent EntitiesBank

CategoryEffectivity Date

1 Bangko Mabuhay (A Rural Bank), Inc. RB Rural Bank of Tanza (Cavite), Inc. “Bangko Mabuhay” RB 1-Apr-15Rural Bank of Teresa (Rizal), Inc. RB

2 Insular Savers Bank, Inc. (A Rural Bank) CB Insular Rural Bank, Inc. RB 1-Jun-15Filipino Savers Bank, Inc. (A Rural Bank) RB

3 Camalig Bank, Inc. (A Rural Bank) RB Rural Bank of Camalig (Albay), Inc. RB 1-Jul-15Rural Bank of Ocampo (Camarines Sur), Inc. RB

MERGER

Surviving Entity

CONSOLIDATION

Consolidated Entity

Figure 24Philippine Banking SystemNumber of Closed BanksEnd-December 2015

Bank Category

Date of Closure

1 Community Bank (Rural Bank of Alfonso, Inc.) RB 26-Feb-152 Rural Bank of Magsingal (Ilocos Sur), Inc. RB 5-Mar-153 Rural Bank of Labrador (Pangasinan), Inc. RB 16-Apr-15

4 Surigaonon Rural Banking Corporation RB 23-Apr-155 Community Rural Bank of Magsaysay (Davao del Sur),

Inc.RB 7-May-15

6 Rural Bank of Sta. Magdalena (Sorsogon), Inc. RB 14-May-157 Siargao Bank (A Rural Bank), Inc. RB 11-Jun-15

8 Rural Bank of Taysan (Batangas), Inc. RB 26-Jun-159 Farmers’ Rural Bank, Inc. RB 14-Aug-15

10 BDO Elite Savings Bank, Inc. TB 20-Aug-15

11 Xavier-Punla Rural Bank, Inc. RB 20-Aug-1512 Rural Bank of Buguias (Benguet), Inc. RB 22-Oct-1513 Rural Bank of Calasiao, Inc. RB 13-Nov-15

14 Rural Bank of Caba (La Union), Inc. RB 10-Dec-1515 Penafancia Rural Bank of Calabanga (Cam. Sur), Inc. RB 10-Dec-15

Name of Bank

22 2222



Overview

Marginal growth in the resources of the trust industry of P8.1 billion (0.3 percent) allowed it to reach P2,671.4 billion. The financial assets that fuelled said growth were mostly investments in debt securities issued by corporates.

Likewise, profitability, driven by improved income and better managed expenses, posted an increase of 18.7 percent (P0.9 billion).

Universal banks prevailed over the trust industry

Universal banks with trust licenses cornered 82.8 percent of the market with total assets of P2,212.1 billion while commercial banks accounted for P307.5 billion (11.5 percent). Investment houses’ share was at P114.1 billion (4.3 percent), and the balance of P37.7 billion (1.4 percent) went to thrift banks.

For all institutional categories, financial assets accounted for bulk of trust assets, especially equity securities. However, in terms of growth, debt securities excluding resident-issued government securities out-stripped equities at end-December 2015 indicating a more cautious stance that would balance the risks posed by investments in equities.

Moreover, universal, commercial and thrift banks’ trust departments showed increases in their respective resources compared to non-bank financial institutions, which experienced a decline led by their financial assets (down by P15.8 billion to P88.2 billion or by 15.2 percent) and loans (down by P3.0 billion to P21.6 billion or by 12.2 percent). Nevertheless, this was not enough to drive down financial assets, which

drew strength from the P76.6 billion (5.9 percent) growth contributed by universal and commercial banks.

Global developments encouraged investments in safer havens

On the asset side, financial assets grew by P66.3 billion (4.7 percent) led by debt securities (excluding resident-issued government securities), which went up by P41.0 billion (11.1 percent) on the back of the country’s stable macroeconomic environment in the face of global headwinds39. This is a complete turn-around from its P70.6 billion (16.1 percent) decline registered in the previous year.

Trust Operations

___________________________

39 In 2015 ended with an annual GDP growth of 5.8 percent, a full-year average inflation rate of 1.4 percent and an average exchange rate of P46.87/USD1.

Figure 26 Asset Mix by Financial InstitutionAs of End-Periods Indicated

Dec-15 Dec-14r Dec-15 Dec-14r Dec-15 Dec-14r

15.0 14.0 14.3 18.2 0.9 0.8

20.9 19.5 16.3 18.9 2.7 2.6

54.3 51.6 56.3 52.0 77.2 77.7

1.7 1.8 6.2 2.1 18.9 18.4

3.4 3.0 0.6 0.7 … …

4.7 10.1 6.3 8.1 0.2 0.4

. . . Less than 0.05 percent

UKBs TBs NBFIs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec-15 Dec-14r Dec-15 Dec-14r Dec-15 Dec-14r

Cash and Due from banks

Deposits in Banks

Financial Assets, net

ROPA (net)

Equity Investments (net)

Loans, net

Universal and Commercial Banks

Thrift Banks NBFIs

Figure 25Trust Assets Per Type of Institution

83%

12%

1%

4%

Universal Banks Commercial Banks

Thrift Banks Investment Houses

Figure 27Trust SystemAsset MixFor End-Periods Indicated

Dec 201555.3%20.1%14.4%3.2%2.5%. . .

4.5%

… Less than 0.05 percent

. . .9.8%

Dec 2014r

52.9%18.6%13.4%2.7%2.6%

Financial Assets, netDeposits in banksCash and due from banksEquity investment, netLoansROPAOther Assets

Dec 2014P2,663.3 billion

Dec 2015P2,671.4 billion


Trust

Among the trust products, it is the trust and agency accounts that are more heavily concentrated in financial assets at 52.3 percent (P815.4 billion) and 74.6 percent (P596.4 billion), respectively. Trust accounts are however more liquid with investments in cash and due from banks at 24.1 percent (P376.5 billion) and deposits in banks at 19.5 percent (P303.5 billion).

In contrast, 6.5 percent (P51.8 billion) of the assets of Agency accounts are in the less liquid loans while only 17.9 percent (P143.3 billion) are in deposits in banks and less than 0.1 percent (P0.1 billion) are in cash and due from banks.

Meanwhile, the appetite for equity securities was tempered as reflected by the significant slowdown in growth to 3.7 percent (P22.2 billion) from 41.2 percent (P176.8 billion) in 2014 due to the bearish performance of the stock market following a slowdown in the Chinese economy and anticipation of a U.S. Fed interest rate increase. In fact, the Philippine Stock Exchange Index has been on a downward trend since the second half of 2015, with a high of 7,670.4 in June and a low of 6,701.4 in December. Likewise, trade volumes has been on a decline, hitting a high of 14, 225,583.0 in November and a low of 2, 253,240.5 in December.

These developments likewise spurred the growth in deposits in banks, which went up to P535.7 billion or by 39.4 billion (7.9 percent) as it offered a less risky investment option as compared to equities.

It is worth noting though, that investments in non-marketable equity securities grew to P85.4 billion, up by P12.9 billion (17.8 percent), from P72.5 billion during the period in review.

In addition, cash and due from banks, particularly the Special Deposit Accounts (SDAs) registered a P28.8 billion (8.2 percent) increase, ending 2015 at P378.9 billion. Since end-2013 there was a notable decline in the SDA level due to the tapering of SDA placements as the BSP only allowed Unit Investment Trust Funds (UITFs) and trust accounts access to the SDA. Other fiduciary accounts including agency accounts and investment management activities were prohibited from using said facility.

These advances in financial assets were negated by the decline in other assets to P121.9 billion or by P134.3 billion (52.4 percent).

Unit Investment Trust Fund (UITF) Recovered on investors’s search for safer investments

In terms of trust products, UITFs, especially Money Market Funds rose, reflecting a preference for safer albeit lower yielding investment instruments as

Figure 28 Asset Mix by Total Managed Fund For End-Periods Indicated

Dec-15 Dec-14r Dec-15 Dec-14r Dec-15 Dec-14r Dec-15 Dec-14r

24.1 23.9 . . . . . . 2.6 2.1 0.2 . . .

19.5 19.8 17.9 17.0 28.7 17.7 0.4 0.3

52.3 52.6 74.6 75.2 20.8 16.8 0.5 0.3

0.8 0.9 6.5 6.8 0.1 0.1 69.4 83.2

1.3 0.6 0.1 0.0 21.1 14.5 . . . . . .

2.0 2.2 0.9 1.0 26.7 48.8 29.5 16.2

. . . Less than 0.05 percent

Special PurposeTrust Agency Other Fiduciary

0%10%20%30%40%50%60%70%80%90%

100%

Dec-15 Dec-14 Dec-15 Dec-14 Dec-15 Dec-14 Dec-15 Dec-14

TRUST AGENCY OTHER FIDUCIARY SPECIAL PURPOSE

Cash and Due from banks

Deposits in Banks

Financial Assets, net

Loans, net

Equity Investments (net)

Other assets

Figure 29Philippine Stock Exchange Index Last Trading Price

-

2,000,000.00

4,000,000.00

6,000,000.00

8,000,000.00

10,000,000.00

12,000,000.00

14,000,000.00

16,000,000.00

18,000,000.00

20,000,000.00

6000

7000

8000

9000

Trade Volume Index Value Poly. (Index Value)

Special Deposit Account Levels

2012 2013 2014 20151,296.9 372.3 350.1 378.9

Figure 30

(in Billion Pesos)For End-Periods Indicated

24 2424



compared to Bond Fund and the Balanced Fund. In fact, Bond Funds went down by P29.7 billion (32.3 percent) to P62.3 billion while Balanced Funds slid by P3.0 billion (12.0 percent) to P22.0 billion.

As of end-December 2015, UITF closed at P677.4 billion, P77.4 billion (12.9 percent) more than last year.

Agency accounts, particularly other institutional agency accounts also contributed to the growth of the accountabilities side as it ended 2015 at P506.0 billion, P38.8 billion (8.3 percent) higher than last year.

Growth on these accounts were however muted by the P132.6 billion (59.1 percent) reduction in custodianship from last year’s P224.5 billion to P91.9 billion this year. The winding down of securities custodianship accounts of certain trust entities contributed to the decline in growth of this type of account following the implementation of the Foreign Account Tax Compliance Act (FATCA) in 2014, which imposed additional operational requirements on foreign custodian banks40.

Money market funds fuel SDA growth

UITFs under Trust yielded a P77.4 billion growth, which came mostly from the P71.8 billion (17.8 percent) increase of Money Market Funds. This spurred the increase in assets due from BSP as Money Market Funds held mostly deposits in banks (P237.1 billion or 49.9 percent) and Due from BSP (P233.4 billion or 49.1 percent), which includes SDAs. In fact, the hike in Due from BSP is mostly attributed to the additional infusions to Due from BSP by Money Market Funds amounting to P25.7 billion.

This is consistent with the preference for less risky investments in the face of a downward trend in the stock market due to negative developments in the global scene (figure 32).

Dollar-denominated trust assets aid in the increase of trust resources

Broken down into peso and dollar denominated resources, trust assets rose mostly on the back of the increase in dollar-denominated trust assets by P32.1 billion (14.1 percent) to P259.1 billion as the U.S.

Figure 31Trust SystemFunding MixFor End-Periods Indicated

Dec 2015 Dec 2014r

25.4% 22.5%20.6% 19.5%14.7% 14.0%13.6% 13.5%

9.7% 9.4%16.0% 21.1%

December 2014P2,663.3 billion

UITFOther Inst. TrustsPersonal TrustEmployee BenefitOther Indiv. TrustsOther Trust Accounts

December 2015P2,671.4 billion

Figure 32Composition of UITF Portfolio as of end-December 2015

MoneyMarket Fund Bond Fund Balanced

Fund Equity Fund Others

Financial Assets at Fair Valuethrough Profit or Loss 0.8% 76.3% 80.3% 89.2% 98.8%

Due from BSP 49.1% 9.5% 9.2% 6.8% 0.0%Deposits in Banks 49.9% 13.2% 8.7% 3.2% 1.0%Other Assets 0.2% 1.0% 1.8% 0.8% 0.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

___________________________

40 As of end-2015, there were six banks and one NBFI offering custodianship services in the Philippines.


Trust

dollar appreciated during the second half of 2015.Meanwhile, peso trust accounts of banks with trust licenses declined by P24.0 billion (1.0 percent) at end-2015 to P2,412.3 billion.

Profitability Picks up at year end

Net income from trust operations stood at P5.7 billion by end-2015, P0.9 billion (18.7 percent) higher

than the P4.8 billion income posted at end-2014 as the combination of increased revenue and lower expenses enabled net income to increase from last year.

In particular, taxes and licenses, other administrative expenses and allocated expenses were controlled, resulting to an increase in profitability.

For Improved Delivery of Trust Services

The BSP issued Circular No. 884 dated 22 July 2015, which provided the guidelines on the establishment and operation of Trust Corporations (TCs). Unlike existing trust units of banks, a TC is organized as a corporation with its own capital and management structure.

In line with the laws which liberalized the entry of foreign banksa in the country, the BSP allowed full foreign ownership of TCs by qualified foreign investors.

Towards an Expanded Line of Trust Products

In the effort to align Unit Investment Trust Funds (UITFs) with the global standards, achieve operational efficiency and lessen friction cost in creating the fund as well as address the various needs of the investors, several circulars were issued to this end.

a. Establishment of Feeder Funds and Fund-of-Funds UITF

On 21 September 2012, the BSP issued Circular No. 767 providing guidelines on feeder funds and funds-of-fund (FOF) . A feeder fund is a UITF structure that mandates the fund to invest at least 90 percent of its assets in a single collective investment scheme (i.e. target fund) while FOFs are assets in more than one collective investment scheme. The BSP allowed target funds to invest in other Collective Investment Schemes (CIS) to provide local investors access to competitive offshore target funds which are equally regulated.

b. Creation of a Multi-class UITF

On 21 October 2014, the BSP issued Circular No. 853 on the creation of Multi-class UITF. A multi-class UITF is a type of fund with more than one class of units which can be differentiated based on the level of trust fees and expenses, minimum participation, minimum holding period, and target participants.

c. Unit Paying UITF

The BSP issued Circular No. 876 dated 20 April 2015 which allows a UITF to have a unit-paying feature. The unit paying UITF allows for a non-guaranteed stream of income to its participant. A unit paying UITF invests in various income-generating securities and upon determination of the trust entity, gives out the income in its equivalent units for automatic redemption. This particular UITF is especially attractive to an investor who wants to enjoy the fruits of his principal without actually redeeming his principal investment.

Apart from the enhancements on the UITF, guidelines on the operation and administration of the Personal Equity Retirement Account (PERA) were also issued by the BSP, which contributed to the expansion of trust products.

Enacted into law in 2008, Personal Equity and Retirement Account or PERA is a tax-exempt retirement planning instrument. Future incomes from PERA are exempt from tax and voluntary contributions of private employers to employees’ PERA may also be claimed as tax deductions from the employers’ gross income. Further, account holders are also able to count as tax deductions 5 percent of the total amount contributed to their PERA each year.

The BSP issued guidelines for the accreditation of PERA market participants under BSP Circular No. 860 and BSP Memorandum M-2014-045 to All Supervised Entities dated 28 November 2014 and 02 December 2014, respectively. Market participants were defined as administrators, investment managers and custodians of either the cash balances of PERA clients or their investments in PERA-eligible securities. Specific details for handling PERA-related processes such as account opening, administration, withdrawal and termination were provided.

Risk Management and Trust Protection

In 2012, the BSP issued Circular No. 766 or The Guidelines in Strengthening Corporate Governance and Risk Management Practices on Trust, Other Fiduciary Business, and Investment Management Activities. It highlighted the need to strengthen the separation of institutions’ fiduciary business and proprietary dealings and introduced risk management standards for trust and other related activities.

The BSP issued Circular No. 852 on 21 October 2014 to strengthen the disclosure requirements of UITF by: (a) prescribing a Key Information and Investment Disclosure Statement (KIIDS) that is written in plain language and presented in a uniform manner to facilitate understanding and comparison among UITFs offered by trust entities, and (b) requiring trust entities to maintain a

website for online posting of UITF information.

----------------a RA 7721 (An Act Liberalizing The Entry And Scope of Operations of Foreign Banks in the Philippines and for Other Purposes, as amended by RA 10641 and RA 10574 (Amended Rural Bank Act

of 1992).

Strengthening the Business of Trust

26 2626



Overview

Banks with Foreign Currency Deposit Unit (FCDU)41 authority sustained healthy performance in the second half of 2015 amid uncertainties in global market conditions as external pressures coming from the slowdown in China has contributed to the rise in investor risk perception and a flight to safe haven assets. The FCDU system’s resources posted a moderate expansion of 7.1 percent year-on-year. Overall, banks engaged in FCDU operations were able to comply with the required minimum of 30 percent for liquidity and the 100 percent for asset cover. FCDU net profits stayed in the positive territory at $756.6 million but the year-on-year growth decelerated on the back of revaluations and marking-to-market of foreign currency denominated financial assets.

Banks with FCDU authority increased

As of end-December 2015, there are 80 banks (40 universal and commercial banks, 28 thrift banks and 12 rural and cooperative banks) with FCDU authority. A total of 38 banks, all of which are universa and commercial banks, have an expanded FCDU authority. Banks engaged in FCDU operations accounted for 12.7 percent of total operating banks in the Philippines.

Following the enactment of Republic Act (R.A.) No.10641 (An Act Allowing the Full Entry of Foreign Banks in the Philippines, Amending For the Purpose R.A. No. 7721), four (4) foreign banks started operations as new foreign bank branches (FBBs) in the Philippines with full banking authority in 2015 pursuant to R.A. No. 1064142.

Significant growth in investments buffeted FCDU asset expansion

Total resources of the FCDU system stood at $44.1 billion, expanding by 5.8 percent year-on-year. By banking group, universal and commercial banks held the largest FCDU asset share at 97.1 percent, followed by TBs at 2.9 percent while rural and cooperative banks had negligible shares due to their limited FCDU operations. Total FCDU assets accounted for 16.2 percent of total system-wide assets. FCDU banks generally complied with the 100 percent asset cover for their foreign exchange exposures as required by law and BSP regulations with a total of 90.5 percent of all FCDU banks complied. The average asset cover ratio stood at 102.1 percent and median cover ratio at 100.7 percent. Combined, 94.6 percent of all FCDU banks complied with the 30 percent liquid asset cover requirement, with an average liquid asset cover ratio of 78.8 percent.

Foreign Currency Deposit Unit (FCDU) System

_____________________________________________________

41 Prepared in compliance with Foreign Currency Deposit Act (Republic Act No. 6426)42 Sumitomo Mitsui Banking Corporation, Cathay United Bank Co. Ltd., Shinhan Bank Co. Ltd., and Industrial Bank of Korea.

Financial Assets, net,

44.3%

Cash and Due from Banks,

14.0%

Loans, net, 39.7%

Other Assets, 2.0%

December 2014$41.7 billion

Financial Assets, net,

50.5%

Cash and Due from Banks,

11.9%

Loans, net, 35.9%

Other Assets, 1.7%

Figure 33FCDU Asset MixFor End-Periods Indicated



FCDU

Portfolio investments or financial assets other than loans accounted for half of FCDU system’s assets (Figure 33). Total portfolio investments of the FCDU system stood at $22.3 billion, posting a year-on-year growth of 20.5 percent and with overall share to total assets also increasing during the review period.

The growth mainly came from the substantial expansion in held-to-maturity (HTM) financial assets of $4.1 billion (75.8 percent) and available-for-sale (AFS) financial assets of $1.0 billion (11.3 percent) (Figure 34).

By counterparty (Figure 35), bulk of FCDU bank’s holding were debt securities issued by residents amounting to $13.5 billion or 60.5 percent of the total FCDU investments. These were mostly issuances

of the Philippine Government ($10.5 billion or 47.0 percent), consisting of the national government ($9.2 billion), GOCCs ($1.3 billion), LGUs ($5.3 billion) and BSP ($79.5 million). Other resident FCDU financial assets came from issuances of Philippine Corporates ($3.0 billion or 13.5 percent) which include banks ($0.4 billion) and corporations ($2.6 billion). Non-resident investments amounted to $8.8 billion or 39.5 percent of total investments.

Year-on-year, investment in national government securities expanded by 18.0 percent from $8.9 billion last year to $10.5 billion. Foreign currency denominated sovereign debt securities or ROPs, specifically grew by 20.2 percent year-on-year to $9.2 billion. These ROPs also accounted for 87.0 percent of total FCDU system’s holdings of government-issued debt securities.

Meanwhile, the evident increasing preference of banks with FCDU authorities to invest in debt securities issued by non-residents manifested in the robust growth of the system’s holdings of non-resident debt papers which grew year-on-year by 31.9 percent ($2.1 billion) as banks searched for better yields offshore. Accordingly, the share of portfolio investments in debt securities issued by non-residents rose to 39.5 percent from 36.3 percent last year. While still manageable, these exposures make banks with FCDU authority more susceptible to cross-country and foreign exchange risks, which may warrant careful monitoring from bank supervisors.

(36.4)

11.3

75.8

(22.9)

(60.0)

(40.0)

(20.0)

-

20.0

40.0

60.0

80.0

100.0

-

3,000.0

6,000.0

9,000.0

12,000.0

15,000.0

Held for Trading(HFT)

AFS - Net HTM - Net Unquoted DebtSecurities

Classified asLoans - Net

In PercentIn US$ Millions

Figure 34FCDU Financial Assets By AccountFor End-December 2015

Non-Resident Resident Y-o-Y Increase

Non-Resident, 39.5%

Philippine Government,

47.0%

Philippine Corporates,

13.5%

Figure 35FCDU Financial Assets By CounterpartyFor End-Period Indicated


28 2828



Minimal growth in FCDU banks credit

FCDU loans accounted for 35.9 percent of the total resources of the FCDU system. It also represented 9.6 percent of the total loan portfolio of the banking system and 4.3 percent of the country’s gross domestic product (GDP).

By economic activity (Figure 36), majority of FCDU loans were channeled to residents to support financing requirements of the following sectors: manufacturing and wholesale and retail trade ($3.3 billion or 25.7 percent), public utilities ($2.6 billion or 20.1 percent), financial and insurance activities or financial intermediation ($1.7 billion or 13.5 percent). Loans to non-residents accounted for 23.6 percent ($3.0 billion) of FCDU loans.

By type of borrower, most of the FCDU loans went to residents (70.8 percent), comprised of exporters (22.2 percent), public utilities (9.8 percent), and producers or manufacturers (8.3 percent). Moreover, domestic U/KBs were the major creditor banks for FCDU loans cornering 83.2 percent of the loan pie while foreign bank branches and subsidiaries serviced 16.8 percent of the FCDU loan market43.

By maturity profile, the bulk of FCDU loans were medium and long-term (more than five years) loan transactions at 66.5 percent while short-term loans represented 33.5 percent.

In terms of asset quality, the non-performing loan and non-performing asset (NPL/NPA) ratios of the FCDU system remained at less than 0.3 percent. Loss provisioning further strengthened as both the NPL and NPA coverage ratios stood above 400 percent.

The FCDU system maintained a stable liquid position

The funding profile of FCDU banks remained generally stable with deposit liabilities still the major source of funds at 73.6 percent ($32.4 billion), although lower than last year’s share of 76.3 percent. The contraction in shares of deposit liabilities was influenced by the softer annual growth in FCDU deposit liabilities of 2.1 percent to $32.4 billion compared to 22.7 percent increase as of end-December 2014, largely similar to the tapering of deposit liabilities of the banking system. FCDU deposits accounted for 16.7 percent of the total deposit liabilities of the banking system.

Resident depositors accounted for the 97.1 percent share of total deposit liabilities while the remaining 2.9 percent share was sourced from non-resident depositors. These broadly indicate that FCDU funding is relatively stable and domestically-oriented. Other significant sources of funds were: bills payable at 15.6 percent ($6.9 billion), bonds payable at 4.6 percent ($2.0 billion), and net due to head office at 2.3 percent ($1.1 billion) (Figure 37). Net due to head office decreased by 12.0 percent year-on-year from $1,125.8 million to $ 999.3 million. Under Circular Nos. 854 and 858, net due to head office of foreign bank branches and subsidiaries are not considered part of capital.

Real EstateActivities,

4.8%

Manufacturingand Wholesale/

Retail Trade,25.7%

Information andCommunication,

4.0%

Public Utilities,20.1%

Financial andInsuranceActivities,

13.5%

Loans toNon-Residents,

23.6%

Other Sectors,6.1%

Mining andQuarrying,

2.2%

Figure 36FCDU Loan Portfolio Structure By Economic SectorFor End-Period Indicated


Deposit Liabilities,

76.3%Bills

Payable,11.3%

BondsPayable, 3.4%

Net Due to HO/Branch/

Agencies,2.7%

Due toOther Banks,

1.9%

Other Liabilities,

1.7% TotalCapital,

2.7%


DepositLiabilities,

73.6%BillsPayable,

15.6%

BondsPayable, 4.6%

Net Due to HO/Branch/

Agencies,2.3%

Due toOther Banks,

1.6%

OtherLiabilities,

0.8% TotalCapital,

1.5%

Figure 37FCDU Funding MixFor End-Periods Indicated


______________________________________________

43 Source: International Operations Department, Bangko Sentral ng Pilipinas.


FCDU

Meanwhile, total capital maintained a minimal share of 1.5 percent ($644.6 million) of total funding, lower than last year’s 2.7 percent. The reduction was due to the 21.1 percent ($129.0 million) decrease in undivided profits as well as the decrease in other equity instruments of 64.9 percent ($228.0 million).

The liquidity position of FCDU banks further improved during the review period as liquid assets-to-deposits ratio rose to 84.7 percent (inclusive of ROPs) and 56.4 percent (excluding ROPs) from 76.4 percent and 52.41 percent a year ago, respectively. While loans-to-deposits ratio eased to 49.3 percent from last year’s 52.4 percent.

FCDU banks still profitable but structural break noted in profit levels

Banks engaged in FCDU operations remained profitable as net profit stood at $756.6 million, although 13.0 percent lower than the 2014 level (Figure 38). It accounted for 24.9 percent of the total net profit of the banking system. FCDU net profits averaged at $940.0 million for the last five years.

The deceleration in the growth of net profit was due to the 39.7 percent decline in non-interest income whose level dropped to $249.1 million from $412.8 million. The drop in non-interest income was due

US Fed Tapering Roadmap announced by US Fed Chief

Ben Bernanke on 19 June 2013

14.4%

-2.9%

15.1%

-27.0%

3.9%

-13.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

June2010

Dec2010

June2011

Dec2011

June2012

Dec2012

June2013

Dec2013

June2014

Dec2014

June2015

Dec2015

In PercentIn US$ Millions

Figure 38FCDU Net Profit or LossFor End-Periods Indicated

Net Profit or Loss Y-O-Y Trend Net Profit or Loss

-80.0%

-40.0%

0.0%

40.0%

80.0%

120.0%

160.0%

-

200.000

400.000

600.000

800.000

1,000.000

June2008

Dec2008

June2009

Dec2009

June2010

Dec2010

June2011

Dec2011

June2012

Dec2012

June2013

Dec2013

June2014

Dec2014

June2015

Dec2015

In PercentIn $ Millions

Figure 39FCDU Net-Interest Income and Non-Interest IncomeFor end-periods indicated

Net-Interest Income Non-Interest Income

S-O-S Trend Net-Interest Income S-O-S Trend Non-Interest Income

30 3030



to significant losses on financial assets and liabilities held for trading ($29.3 million) and losses on financial assets and liabilities designated at fair value through profit or loss ($0.4 million).

Meanwhile, net interest income grew by 5.4 percent year-on-year mainly due to the movements in interest income which increased by 6.8 percent. Despite the moderate growth, interest-based revenues supported the positive bottom line of banks engaged in FCDU operations as these accounted for 74.3 percent of total operating income and 95.1 percent of net profit of the FCDU system. Moreover, these were markedly higher than the respective shares of 62.3 percent and 78.6 percent for the same period in 2014.

The non-interest expense of $185.2 million went up slightly by 0.8 percent from last year due to the growth in other administrative expenses (4.9 percent

or $5.3 million) particularly on management and other professional fees which increased by 93.3 percent, from $2.8 million last year to $5.4 million as of end-December 2015. Expenses incurred on supervision fees and on insurance also increased year-on-year by 40.0 percent and 37.6 percent, respectively. The large share in overhead costs contributed to a high cost-to-income (CTI) ratio of 19.0 percent from 16.8 percent same period in 2014 on the back of stunted growth in net profit.

Other profitability indicators exhibited marginal softening as return on assets (ROA) further eased to 1.8 percent from 2.3 percent. Net interest margin (NIM) also eased to 1.7 percent from 1.9 percent.


Foreign Bank Branches and Subsidiaries

Foreign Bank Branches and SubsidiariesOverview

The enactment of Republic Act (R.A.) No. 10641 (An Act Allowing the Full Entry of Foreign Banks in the Philippines, Amending For the Purpose R.A. No. 7721) affected the regulatory capital of foreign bank branches (FBBs) when the “Net Due to Head Office/Branches/Agencies Abroad” account was no longer recognized as a component of capital. Nevertheless, four (4) new FBBs brought in fresh funds to the Philippine banking system in 2015.

The challenging global economic environment, particularly the expectation of further interest rate hike by the US Federal Reserve44 in 2015 affected foreign banks’ investment activities which resulted to slight contraction in the total resources of FBBs and subsidiaries by 4.5 percent. Assets were mainly backed up by deposit liabilities, which were principally channeled to loans. Inherent banking risks were considered manageable as displayed by solvency, asset quality and liquidity indicators. The foreign banks group registered a positive bottom line due to higher net interest income.

Most FBBs and subsidiaries originated from the Asia-Pacific Region

As of end-December 2015, there were 23 foreign banks which were authorized to operate in the

Philippines (Figure 40). Four of which started operations as new FBBs in the Philippines with full banking authority in 2015 pursuant to R.A. No. 10641, namely: Sumitomo Mitsui Banking Corporation, Cathay United Bank Co. Ltd., Shinhan Bank Co. Ltd., and Industrial Bank of Korea (Figure 42).

Most of the FBBs and subsidiaries originated from the Asia-Pacific region. The number is seen to further increase due to the potential entry of Qualified ASEAN Banks (QABs) under the ASEAN Banking Integration Framework (ABIF)45.

Assets growth moderated by slowdown in investing and lending activities.

Total resources of foreign banks at P987.8 billion went down by 4.5 percent compared to the P1,033.8 billion posted last year resulting from the slowdown in investing and lending activities. As a result, the share of foreign banks in the total assets of the Philippine banking system as of end-2015 slipped to 8.2 percent from 9.3 percent at end-2014. Their share remained well below the 40 percent ceiling set under Section 3 of R.A. No. 7721, as amended by R.A. No. 10641. Although said law fully liberalizes the entry of foreign banks in the Philippines, it provides that at least 60 percent of the total assets of the Philippine banking system shall be controlled by domestic banks which are majority-owned by Filipinos.

The asset mix of the foreign banks group as of end-2014 was largely comprised of loans, cash and due from

Figure 40Foreign Bank Branches and SubsidiariesAs of End-December 2015Composition

Branch SubsidiaryBy Bank Category

Universal Bank 6 -Commercial Bank 12 2Thrift Bank - 3Total 18 5 3/

By Mode of EntryR.A. 337 4 -R.A. 7721 10 4R.A. 10641 4 1/ 1 2/

Total 18 51/ Refers to the new FBBs operating as of end-December 2015. One foreign bank subsidiarywith TB license converted its original mode of entry into a FBB with KB license effective 4January 2016.2/ Refers to Tong Yang Savings Bank, Inc. (TYSBI) that was recognized as a foreign bank-controlled as of end-December 2015 pursuant to Monetary Board Resolution No. 1017 dated26 June 2015, which approved the application of Yuanta Commercial Bank Co. Ltd. for authorityto acquire the whole equity of its subsidiary, Yuanta Securities Korea Co., Ltd. in TYSBI underR.A. No. 10641. Changing name of TYSBI to Yuanta SB Phils, still in process.3/ Excludes mBank Philippines (A Thrift Bank) Inc., a foreign NBFI-controlled; otherwise, therewill be 24 FBBs and foreign-owned subsidiaries.

Figure 41Foreign Bank Branches and SubsidiariesCountry of Origin

Asia Pacific65%

15 banks

Europe22%

5 banks

America13%

3 banks

By Region

11

13

4

11

1

313

3

Australia

China

Germany

Japan

Korea

Malaysia

Netherlands

Singapore

Taiwan

Thailand

United Kingdom

USA

By Country

Figure 42Foreign Bank Branches and Subsidiaries

1. Sumitomo Mitsui Banking Corporation

Japan KB Branch 13.0 billion 1-Sep-15 Makati City

2. Cathay United Bank Co., Ltd. Taiwan KB Branch 2.0 billion 2-Oct-15 Makati City3. Shinhan Bank Co. Ltd. Korea KB Branch 2.2 billion 19-Oct-15 Taguig City 4. Industrial Bank of Korea Korea KB Branch 2.2 billion 6-Nov-15 Taguig City

As of End-December 2015Profile of New FBBs in the Philippines

NAME OF BANK CountryType of

BankMode of

Entry

Permanently Assigned Capital

First Day of Operation

Location

____________________________

44 The US Federal Reserve increased its rate by 0.50 basis points on 16 December 2015.45 As of printing, the BSP and Bank Negara Malaysia (BNM) signed the Heads of Agreements (HoA), which contain the guidelines pertaining to the entry of QABs between the two countries.

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banks, financial assets (other than loans) and reverse repurchase (RRP) transactions at 33.2 percent, 32.2 percent, 21.3 percent and 4.2 percent, respectively. The same mix was relatively maintained in end-2015 except for changes in percentage share of cash and due from banks which dropped to 26.4 percent and RRP agreements, which increased to 11.0 percent.

Growth of core lending activities (total loan portfolio, excluding interbank loans and RRP) was muted registering a loan portfolio of P345.8 billion from P357.7 billion last year (Figure 43). Lending to productive sectors comprised 68.8 percent and 5.3 percent of the foreign banks’ and banking system’s total loan portfolio as of end-2015.

By industry sector, most of the loans went to individuals for consumption purposes (i.e. credit card receivables, motor vehicle loans, salary-based general-purpose consumption loans and other consumer loans), cornering 25.3 percent (P87.6 billion) compared to last year’s 22.9 percent (P82.0 billion). Manufacturing ranked second with 24.7 percent (P85.5 billion) followed by real estate activities with 9.7 percent (P33.6 billion).

Consumer lending posted a 7.3 percent year-on-year growth mostly on account of the 32.7 percent (P4.9 billion) hike in motor vehicle loans to 19.9 billion followed by the 10.3 percent (P1.3 billion) increase in residential real estate loans to P13.9 billion. Credit card receivables also recorded an increase of 6.7 percent (P3.5 billion) to P56.0 billion. Meanwhile, salary-based general-purpose consumption loans and Other consumer loans decreased by 11.5 percent to P3.9 billion and 24.0 percent to P7.7 billion, respectively.

Foreign banks’ lending to individual consumers represented only 9.6 percent of the P1,060.9 billion total consumer loans extended by U/KBs and TBs while the domestic counterpart continued to hold the lion’s share of 90.4 percent as of end-December 2015 (Figure 45).

Gross non-performing loans (NPLs) to total loan portfolio and non-performing assets (NPA) to total assets remained low at 1.5 percent and 0.8 percent compared to last year’s 2.1 percent and 1.0 percent, respectively. The foreign banks’ group similarly kept the NPL and NPA coverage ratios above 100 percent at 173.4 percent and 156.8 percent, respectively. Distressed assets ratio also displayed better ratio of 1.8 percent from 2.4 percent in the previous year.

Cognizant of global market reaction to the Fed’s monetary policy stance, majority of foreign banks curtailed their bond holdings particularly those issued by the National Government and other foreign central governments or central banks contributing to the P9.8 billion decline in foreign bank’s investment portfolio from P220.4 billion to P210.6 billion as of end-2015. By investment category, foreign banks’ trading portfolio significantly dropped by P40.0 billion from P130.1 billion in 2014 while there was a growth in non-trading portfolio as available-for-sale and held-to-maturity securities increased by 34.5 percent (P28.1 billion) and 45.1 percent (P3.0 billion), respectively.

There was a noted decline in reported balances in cash and deposits with the BSP and other banks by 21.8 percent (P72.5 billion) while loans and receivables arising from RRPs with BSP and other banks surged by 148.2 percent (P65.1 billion) indicating FBBs and subsidiaries’ move to engage in transactions that provide higher yields. For instance, funds placed in overnight RRP facility of the BSP offered better rate of 4.0 percent as compared to Special Deposit Account’s (SDA) fixed rate of 2.5 percent for all tenors. Despite this shift in holdings, foreign banks maintained strong liquidity position.

Dec 2014 Dec 2015

22.9% 25.3%24.4% 24.7%9.8% 9.7%

10.5% 9.1%7.4% 6.4%3.0% 4.1%2.5% 2.7%2.5% 2.3%1.7% 0.3%

15.3% 15.4%

Figure 43Foreign Bank Branches and Foreign Bank Subsidiaries

Loan Portfolio Structure by Industry Sector1

Loans to Individuals for Consumption PurposesManufacturingReal Estate ActivitiesWholesale & Retail TradeFinancial and Insurance ServicesElectricity, Gas, Steam and Air-Conditioning SupplyOther Service ActivitiesAgriculture, Forestry and FishingTransport and StorageOthers

DEC 2015P345.8 Billion

DEC 2014P357.7 Billion

1Excludes Interbank Loans and Reverse Repurchase Transactions

Figure 44Foreign Bank Branches and Foreign Bank SubsidiariesAs of End-December 2015

Components of Consumer Loans

- 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0 450.0 500.0

Other Consumer Loans

Salary-Based General-PurposeConsumption Loans

Credit Card Receivables

Motor Vehicle Loans

Residential Real Estate Loans

Domestic U/KBs and TBs


Figure 45Foreign Bank Branches and Foreign Bank Subsidiaries As of End-December 2015Percentage Share of Consumer Loans

Residential Real Estate Loans

Motor Vehicle Loans

Credit Card Receivables

Salary-Based General-Purpose

Consumption Loans

Other Consumer

LoansTotal

Domestic U/KBs and TBs 40.5 26.8 11.6 9.5 2.0 90.4Foreign Bank Branches and Subsidiaries 1.3 1.9 5.3 0.4 0.7 9.6

Total 41.8 28.7 16.9 9.9 2.7 100.0



Funding primarily came from deposits

Foreign banks sourced the majority of their funds from deposit liabilities, which accounted for 60.4 percent of total resources (down from 61.8 percent last year), followed by capital funds, and bills payable at 14.3 percent and 1.6 percent, respectively. It may be noted, however, that deposit liabilities declined by 6.5 percent (P41.5 billion) from P638.6 billion in 2014 mainly on account of the reduction in non-residents’ demand and time deposits. Bills payable, which were mostly short-term borrowings from non-resident banks, increased to P16.0 billion from P14.8 billion in 2014.

One advantage of foreign banks over domestic banks is alternative access to funding provided by their Head Offices or sister branches abroad in the form of borrowings or deposit placements.

Liquidity was considered ample as liquid assets-to-deposits ratio, cash and due from banks-to-deposits ratio, and loans-to-deposit ratio stood at 78.7 percent, 43.7 percent, and 84.2 percent, respectively.

Foreign banks remained solvent

Capital adequacy ratio of FBBs at 22.0 percent and subsidiaries at 19.5 percent, on solo basis, were above the BSP’s and international benchmarks of 10 percent and 8 percent, respectively, as of end-December 2015. Similarly, common equity tier 1 (CET1) capital ratios, the highest quality among instruments eligible as capital, of FBBs and subsidiaries, with U/KB license, at 21.3 percent and 17.0 percent, respectively, were higher than the U/KB industry CET1 capital ratio of 12.4 percent.

R.A. No. 10641, as implemented by BSP Circular No. 858 dated 21 November 2014, de-recognized the “Net Due to Head Office/Branches/Agencies Abroad”46 account as part of capital to align with the minimum capital required for domestic banks of the same category. This statutory change has driven the decline in FBBs’ regulatory capital by 40.8 percent (P81.9 billion). However, such impact was partly compensated by the entry of fresh capital from new FBBs amounting to P19.4 billion.

Profits sustained by interest-based earnings

FBBs and subsidiaries stayed profitable for the year ended 31 December 2015 registering a net profit of P5.9 billion, although P0.9 billion lower than the P6.8 billion earned in 2014 (Figure 47). The foreign banks’ operating income, net of non-interest expenses stood at P15.0 billion. In the case of the four new FBBs, the generated operating income of P0.1 billion was not enough to cover organizational expenses of P0.4 billion. This is expected since these FBBs only started operations during the fourth quarter of 2015.

Foreign banks’ net interest income grew by 3.5 percent or P1.1 billion to P32.7 billion in 2015 primarily due to higher interest income from loans and financial assets.

Non-interest income, however, slipped by 3.3 percent to P18.8 billion (vs. P19.4 billion in 2014) on account of lower income from dividends, fee-based and trading activities. The trading income, which tapered off by 2.8 percent, was pulled down by the P10.7 billion losses incurred from derivative transactions particularly on forward foreign exchange (FX) contracts, but was mitigated by the P8.4 billion gains from FX transactions and P0.1 billion non-trading gains from sale of debt securities. The decline in fees and commissions from fiduciary activities and intermediation services also contributed to the decrease in non-interest income.

Figure 46Foreign Bank Branches and SubsidiariesAs of End of Periods IndicatedCapital Adequacy Ratio (Solo)

-

5.0

10.0

15.0

20.0

25.0

2010 2011 2012 2013 2014 2015p

In Percent

FBBs and Subsidiaries Philippine Banking System

Figure 47Foreign Bank Branches and SubsidiariesComparative Net Profit

-2.0

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

In PhP billions

Subsidiaries Branches

_____________________________________________________

46This account was previously included as part of capital of FBBs pursuant to R.A. No. 7721.

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Due to higher compensation/fringe benefits, taxes/licenses as well as other administrative expenses such as professional fees and membership dues to various associations or professional organizations, non-interest expenses increased by 3.7 percent (P1.3 billion), contributing to the group’s higher cost-to-income ratio of 70.9 percent from 69.0 percent in 2014.

As a result, domestic banks bested their foreign counterparts in providing better returns to shareholders as indicated by their comparative ROA and ROE ratios (Figure 48).

Off balance sheet transactions lowered by P317.9 billion from P1,865.7 billion as of end-December 2014 mainly due to the P175.8 billion decrease in interest rate and foreign exchange derivatives contracts, which accounted for 63.5 percent of the total contingent assets of the foreign banks group in 2015.

Overall, foreign banks remained committed in their efforts to support the policy objectives provided under Section 1 of R.A. No. 7721 as amended under R.A. No. 10641 (2015 Survey on the Effects of Foreign Bank Entry into the Philippines Banking System), salient features of which include:

•Attract foreign investments and serve as channels for the flow of funds and investments into the economy to promote industrialization

Foreign banks sponsored or participated in various economic and trade activities where business potentials of the country were showcased and disseminated to attract more foreign investments and strengthen ties with other countries. They also facilitated the flow of funds in the form of equity investments or additional capital for the establishment, expansion and/or continuous operation of various companies in the Philippines.

Non-deal roadshows and forums were, likewise, conducted to bridge potential partnership between foreign and local corporations as well as to encourage investments in fixed income/securities issued by

the Republic of the Philippines or participation in Public-Private Partnership. Moreover, guidebooks on investment and business opportunities in the Philippines were published in print and online and made available to a wide cross-section of clients.

•Provide a wider variety of financial services to Philippine enterprises, households and individuals

Foreign banks continued to support the financing needs of local residents and companies, home country clients operating in the Philippines as well as the National Government. In 2015, FBBs and subsidiaries reported committed credit lines, including syndicated facility to various companies, of $2.2 billion and outstanding project loans of $0.7 billion. Aside from funding project loans, foreign banks also extended financial advisory and underwriting services to other banks, corporations, and the National Government for the issuance of their debt or equity instruments. To further improve financial products and services delivery and ensure customer satisfaction, FBBs and subsidiaries continued to capitalize on and enhance existing banking/financial technology and support systems for their front and backroom operations. Included among these were systems to support their credit card activities; payment and remittance; fund transfer, clearing and settlement; treasury operations; and financial and regulatory reporting.

•Contribute to the alleviation of unemployment in the country

Foreign banks continued to invest substantially in human resources to support their operations in the country, thereby contributing to the alleviation of unemployment. As of end-2015, FBBs and subsidiaries employed a total of 7,088 personnel, of which 6,959 or 98.2 percent were Filipinos. Foreign banks also invested heavily on training and seminars on the latest developments/trends in banking as a means to boost competitive advantage of their workforce. Some banks implemented web-based courses offered to their employees as part of their regular training.

Figure 48Foreign Bank Branches and Subsidiaries

Comparative Return on Assets and Return on Equity

2014 2015 2014 2015FBBs and Subsidiaries 0.7 0.6 3.7 3.3 FBBs 0.7 0.6 3.8 3.3 Subsidiaries 0.4 0.5 2.9 3.3Domestic Banks 1.3 1.2 12.0 10.6

End-DecemberReturn on Assets Return on Equity

(in %) (in %)

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