Philippines Commercial Banking Report Q3 2008

Over the last year, the crisis in the inter-bank market, and the soaring prices of oil and other raw materials, tended to obscure several other important trends. In most of the developing world (i.e. the vast majority of the countries whose banking industries are surveyed by BMI), lending has been growing quickly. In many emerging markets, inflationary pressures have been boosted by a rapid increase in credit. In a number of emerging markets, macro-economic imbalances are evident.

The figures on the tables above provide a snapshot of the banking sector and the changes that have taken place within it over the last year. To place the figures in context, it may be useful to bear in mind certain aspects of the 59 countries whose banking sectors are currently surveyed by BMI. Across this sample, the median growth in assets in local currency terms was 21.3% (in Colombia). The median loan growth was 21.6% (in India). The median growth in deposits was 17.9% (in Brazil).

On their own, the ratios of loans to deposits, assets, and GDP mean little: however, they can provide useful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is 92.3% (in Greece). The median loan/asset ratio is 56.0% (in Poland). The median loan/GDP ratio was 63.9% in India.

From Q308, we have included a new section that examines the risks associated with each country's banking sector in a new way. We have essentially sought to ask this question: to what extent will the banking sector likely need to source funding from banks in the rest of the world over the course of 2008.

Given that the answer is not necessarily, on its own, meaningful, we have looked at other key issues such as the size and recent movement in the loan/deposit ratio, macro-economic developments and recent movements in financial markets.

Two general themes pervade the banking sectors of the Asia-Pacific region. The first is that the excess savings within Greater China and Japan remain enormous and are likely to grow. One expression of this will be the continuing growth in bank deposits that is, in absolute terms, considerably greater than the growth in lending. The second is that central banks have, in much of the region, been moving to tighten monetary policy. This has already had an impact on the behaviour of the banks.

As in previous reports, we include a SWOT analysis for the Philippines. One of the key features of the banking sector is its slow growth through 2007 - in absolute terms and relative to its peers in other countries in the Asia Pacific. The obvious conclusion is that a generally benign macro-economic environment has not produced a significant increase in opportunities for profitable lending - at least from the point of view of the Philippines' battle-hardened loans officers.

Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns: it does this by taking into account the size, growth potential and bancassurance potential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends on an assessment of the risks to the realisation of potential returns: this reflects BMI's assessments of overall country risk, together with the regulatory and competitive environment.

CBBER For Philippines Philippines overall CBBER is 48.1. Within the limits to potential return, the banking market structure and the country structure are almost evenly rated - with scores of 38.8 and 37.6 respectively. These scores are very low when compared to others in the region. Within the risks to the realisation of potential returns, the market risks and the country risks are rated quite uneven - with respective scores of 55.0 and 81.6.

The Philippines has the third-lowest CBBER of all the Asia Pacific countries surveyed by BMI (only rating above Bangladesh and Sri Lanka).