REPORT ON THE

PHILIPPINE
FINANCIAL
SYSTEM
FIRST SEMESTER 2024
This semestral report is prepared by the Supervisory Policy and Research Department, Financial Supervision Sector,
Bangko Sentral ng Pilipinas, pursuant to Section 39(c), Article V of Republic Act (RA) No. 7653
(The New Central Bank Act), as amended by RA No. 11211, RA No. 7906 (Thrift Banks Act of 1995),
RA No. 7353 (Rural Bank Act of 1992), as amended by RA No. 10574, and RA No. 11901 (The Agriculture,
Fisheries and Rural Development Financing Enhancement Act of 2022).

The report is available at http://www.bsp.gov.ph.

 CONTENTS
Glossary i

Prologue viii

Highlights of the Report 1

The Banking Sector

The Philippine Banking System 6

Foreign Currency Deposit Unit Operations 23

Trust Operations 32

Policy Reform Agenda 42

Box Article 1: Sustained Risk-Based Targeted 48

Financial Sanctions Supervision

Box Article 2: The BSP: Supporting Capital Market 50

Development by Facilitating Growth in the Domestic
Derivatives Market

Box Article 3: Philippine Sustainable Finance 53

Taxonomy Guidelines: A Tool for Sustainable Finance
Growth

Box Article 4: The Business Model of Islamic 56

Banking Units in the Philippines

Appendices 58
i GLOSSARY
A. Financial terms

Agency account – the account wherein the trust institution (agent) binds itself to render asset
management services in representation, or on behalf, of the client (principal) with the consent or
authority of the latter. The trust institution, as an agent, does not hold legal title to the asset as
ownership remains with the principal. In providing wealth, asset or fund management services to
the client, the trust institution exercises either a discretionary or non-discretionary investment
authority under an agency contract.

Assigned capital - the capital permanently assigned by a foreign bank to its branches operating in
the Philippines pursuant to Section 4 of Republic Act (RA) No. 7721 (An Act Liberalizing the Entry
and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes).

Bills payable – the amortized cost of obligations to the Bangko Sentral ng Pilipinas (BSP), interbank
loans payable, deposit substitutes, and other borrowings.

Bonds payable – the amortized cost of obligations arising from the issuance of bonds.

Capital – the total of the unimpaired paid-in capital, surplus and undivided profits, subject to
adjustments. The term is synonymous with “unimpaired capital and surplus”, “combined capital
accounts,” and “net worth”.

Common Equity Tier 1 (CET1) capital – for domestic banks, consists of paid-up common stock,
common stock dividend distributable, additional paid-in capital, deposit for common stock
subscription, retained earnings, undivided profits, other comprehensive income, and minority
interest in subsidiary banks, subject to regulatory adjustments. For branches of foreign banks, this
consists of permanently assigned capital, undivided profits, accumulated net earnings and other
comprehensive income, subject to regulatory adjustments.

Consumer loans – loans granted to individual borrowers for the purpose of purchasing goods or
paying for services. These include housing loans; car or auto loans; loans for purchasing appliances,
furniture, and fixtures; loans for educational and hospital bills; salary loans; and loans for personal
consumption, including credit card loans.

Credit risk – the risk of default on a debt that may arise when a borrower fails to make required
payments, such as the failure to repay a loan.

Debt securities measured at amortized cost –debt instrument held within a business model whose
objective is to hold financial assets to collect contractual cash flows. Its contractual terms give rise
on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.

Demand deposit – consist of deposits that can be withdrawn by check through available bank
channels. Also known as “current account” or “checking account,” the deposits may or may not earn
interest.

Deposit substitute – an alternative form of obtaining funds from the public, other than deposits,
through the issuance, endorsement, or acceptance of debt instruments for the borrower’s own
account, intended for relending or purchasing receivables and other obligations. These
instruments may include bankers’ acceptances, promissory notes, participations, certificates of
assignment and similar instruments with recourse, and repurchase agreements. The phrase
"obtaining funds from the public" shall mean borrowing from 20 or more lenders at any one time.
For this purpose, the term "lenders" shall refer to individuals and corporate entities that are not
acting as financial intermediaries subject to the safeguards and regulations issued by the Monetary
Board (MB).
 ii
The MB shall determine which specific instruments will be considered as deposit substitutes for
purposes of Section 94 of RA No. 11211 (The New Central Bank Act), provided, however, that deposit
substitutes of commercial, industrial, and other non-financial companies for the limited purpose
of financing their own needs or the needs of their agents or dealers shall not be covered by the
provisions of Section 94 of RA No. 11211.

Derivative – a financial instrument or other contract with the following characteristics:

(a) Its value changes in response to the change in a specified interest rate, financial instrument
price, commodity price, foreign exchange (FX) rate, index of prices or rates, credit rating or
credit index, or other variable, provided that, in the case of a non-financial variable, the
variable is not specific to a party to the contract (sometimes called the “underlying”).
(b) It requires no initial net investment or an initial net investment that is smaller than what is
required for other types of contracts that would be expected to have a similar response to
changes in market factors.
(c) It is settled at a future date.

Digital bank – a bank that offers financial products and services processed end-to-end through a
digital platform or electronic channel, with no physical branches. This is a new bank category that
is separate and distinct from existing bank classifications.

Equity investments – investments in the equities or shares of stock of subsidiaries, associates, and
joint ventures.

Fee-based income – the sum of income from payment services, intermediation services,
custodianship, underwriting and securities dealership, securitization activities, fiduciary activities,
and other fee-based revenues.

Financial assets (other than loans and receivables) – the sum of all investments in debt and equity
instruments as well as derivatives which are measured and classified based on their contractual
cash flow characteristics and the business model for holding the instruments as provided under
the Philippine Financial Reporting Standards 9 (PFRS 9).

Financial assets measured at fair value through other comprehensive income (FVOCI) – financial
assets held within a business model, whose objective is achieved by both collecting contractual
cash flows and selling financial assets. The contractual terms of the financial assets give rise, on
specified dates, to cash flows that are solely payments of principal and interest on the principal
amount outstanding.

Financial assets measured at fair value through profit or loss (FVTPL) – financial assets not
measured at amortized cost or at FVOCI and not part of a hedging relationship. These financial
assets consist of financial assets held for trading (HFT), financial assets designated at fair value
through profit or loss (DFVPL), and other financial assets mandatorily measured at FVTPL as defined
under PFRS 9.

Financial liabilities designated at fair value through profit or loss (DFVPL) – financial liabilities that
upon initial recognition, are designated by the bank at FVTPL.

Financial liabilities HFT – the sum of derivatives with negative fair value HFT and liability for short
position.

Financial soundness indicators (FSIs) – a set of key data on the current financial health and
soundness of a country's financial institutions and its corporate and household sectors. These
include both aggregate data on individual financial institutions and representative indicators of
the markets in which these financial institutions operate. Supervisory data are important sources
iii
for the calculation of FSIs. The indicators are calculated and disseminated to support
macroprudential analysis.

Foreign currency deposit unit (FCDU) – a unit of a local bank or of a local branch of a foreign bank
authorized by the BSP to engage in foreign currency-denominated transactions, pursuant to the
provisions of RA No. 6426 (Foreign Currency Deposit Act of the Philippines), as amended.

Gains/(losses) on financial assets and liabilities HFT or Trading income/(loss) – the sum of realized
gains/(losses) from the sale or derecognition of, and unrealized gains/(losses) from marking-to-
market of financial assets and liabilities HFT as well as realized gains/(losses) from FX transactions.

Gross assets – total assets plus allowance on non-performing assets (i.e., allowance for credit losses
on loans, including general loan loss provision; allowance for credit losses on sales contract
receivable; accumulated depreciation and allowance for losses on real and other properties
acquired; and allowance for losses on non-current assets held for sale).

Liquid assets – the sum of cash and due from banks as well as net financial assets, exclusive of
equity investments.

Liquidity risk – the current and prospective risk to earnings or capital arising from a bank’s inability
to meet its obligations when these fall due without incurring unacceptable losses or costs. This risk
includes the inability to manage unplanned decreases or changes in funding sources.

Loans to regular banking unit (RBU) by FCDU/expanded FCDU (EFCDU) – funds from an
FCDU/EFCDU lent to an RBU, as allowed under existing regulations.

Long-term negotiable certificates of deposit (LTNCD) – interest bearing negotiable certificates of

deposit with a minimum maturity of five years.

Negotiable Order of Withdrawal (NOW) accounts – interest-bearing deposit accounts that

combine the payable on demand feature of checks and the investment feature of savings accounts.

Net interest income – the difference between interest income, and the sum of the provision for
losses on accrued interest income from financial assets and interest expense.

Net profit/(loss) – the difference of total operating income and non-interest expenses, plus/(less)
the recoveries/(losses) on financial assets and share in the profit/(loss) of unconsolidated
subsidiaries, associates, joint ventures, and non-controlling interest in profit/(loss) of subsidiaries,
less the provision for income taxes.

Non-interest expenses – the sum of compensation and fringe benefits, taxes and licenses, fees and
commissions, other administrative expenses, depreciation and amortization, and impairment
losses and provisions.

Non-interest income – the sum of dividend income; fee-based income, including income from
fiduciary activities; gains on financial assets and liabilities HFT; FX profits; profits from
sale/derecognition of non‑trading financial assets and liabilities; profits from sale/ derecognition of
non-financial assets; profits on financial assets and liabilities DFVPL; profits on fair value adjustment
in hedge accounting; and other non-interest income.

Non-performing loans (NPLs) – loans, investments, receivables, or any financial asset considered
impaired under existing accounting standards, classified as doubtful or loss, in litigation, or with
signs that full repayment of principal and interest is unlikely without foreclosure of collateral, if any.
Net NPL refers to gross NPLs less the specific allowance for credit losses on NPLs.
 iv
Personal equity and retirement account (PERA) – a voluntary retirement saving program that
supplements existing retirement benefits from the Social Security System, Government Service
Insurance System, and employers. A Filipino citizen with the capacity to contract and obtain a Tax
Identification Number can be a PERA contributor.

Provision for losses on accrued interest income from financial assets – the impairment loss on
accrued interest income from loans and other financial assets, net of equity securities, charged
against current operations.

Quasi-banks (QBs) – entities engaged in the borrowing of funds through the issuance, endorsement
or assignment with recourse or acceptance of deposit substitutes as defined in Section 95 of RA
No. 7653 (The New Central Bank Act), as amended, for purposes of relending or purchasing of
receivables and other obligations. The elements of quasi–banking include:
(a) borrowing funds for the borrower’s own account;
(b) 20 or more lenders at any one time, whereby lenders refer to individuals and corporate
entities that are not banks, quasi-banks or other financial intermediaries;
(c) methods of borrowing are issuance, endorsement, or acceptance of debt instruments of
any kind, other than deposits, such as acceptances, promissory notes, participations,
certificates of assignments or similar instruments with recourse, trust certificates,
repurchase agreements, and such other instruments as the Monetary Board may
determine; and
(d) the purpose of which is relending or purchasing receivables and other obligations.

Real and other properties acquired (ROPA) – real and other properties—other than those used for
banking purposes or held for investment—acquired by the bank in settlement of loans through
foreclosure or dation in payment (dacion en pago) or for other reasons. The carrying amount of
these properties will be recovered principally through a sale transaction.

Real estate exposures (REEs) – assets held by financial institutions composed of:
(a) real estate loans (RELs), which include:
• residential RELs to individual households for occupancy; and
• commercial RELs for purposes of financing real estate activities, to:
o individuals (including sole proprietorships), other than residential RELs granted to
individual households for occupancy;
o land developers and construction companies; and
o other corporate borrowers, such as real estate brokers, real estate lessors, property
management companies, and holding companies; and
(b) investments in debt and equity securities issued by land developers, construction
companies and other corporate borrowers for purposes of financing real estate activities.

REEs do not include loans and investments in debt and equity securities, which are used to finance
infrastructure projects for public use.

Restructured loans – loans and other credit accommodations whose original contractual terms
and conditions have been modified in accordance with a formal restructuring agreement. This
agreement sets forth a revised payment schedule for the purpose of lessening the financial
difficulty of the borrower and maximizing collection and realizable economic value on the
obligation within a reasonable period.

Savings deposit – interest- or non-interest-bearing deposits withdrawable upon demand through

available bank channels.

Securities – a fungible, negotiable financial instrument that holds some type of monetary value. It
is generally categorized into two: (a) equity securities, or securities that represent ownership
interest held by shareholders in an entity, realized in the form of shares of capital stock, and (b)
debt securities, or securities that represent borrowed money that must be repaid, with terms that
stipulate the size of the loan, interest rate, and maturity or renewal date.
v
Tier 1 capital – composed of CET1 and additional Tier 1 capital. It is also known as “going-concern
capital.”

Time certificates of deposit (TD) – interest-bearing deposits with specific maturity dates and
evidenced by certificates issued by the bank.

Total assets – the sum of all net assets, less due from the head office, branches, or agencies of
foreign bank branches.

Total operating income - the sum of the net interest income and non-interest income.

Trust account – the account wherein the legal title to the funds or properties of the trustor is
transferred to the trustee (trust institution), subject to the trustee’s equitable obligation to
administer, hold and manage such funds and or properties for the use, benefit or advantage of the
trustor or other designated beneficiaries. This consists of wealth, asset, or fund management
services to the client where the trust institution exercises either discretionary or non-discretionary
investment authority.

Unit investment trust fund (UITF) – an open-ended, pooled trust fund denominated in peso or any
acceptable currency operated and administered by a trust entity and made available through
participation. As an open-ended fund, participation or redemption is allowed as often as stated in
its rules.

B. Other terms
Financial Reporting Package (FRP) – a set of financial statements for prudential reporting
purposes composed of the balance sheet, income statement and supporting schedules. The FRP
is primarily designed to align the BSP reportorial requirements with the provisions of the PFRS
and the Basel Capital Adequacy Framework, while also meeting the Bank’s statistical
requirements.

Gross domestic product (GDP) – the sum of the gross value added of all resident producer units.
Gross value added is defined as the value of output less the value of intermediate consumption,
while output refers to the goods and services produced by an establishment. Output is equal to
the value of sales adjusted for the changes in inventories of finished goods, that is, goods produced
and ready for sale but not yet sold, or goods sold adjusted for sales of goods produced in an earlier
period. Meanwhile, intermediate consumption consists of the value of the goods and services
consumed as inputs by a process of production, excluding fixed assets whose consumption is
recorded as consumption of fixed capital.

Islamic bank – refers to a bank that conducts banking business with objectives and operations
that do not involve interest (riba) as prohibited by the Shari’ah and conducts business in
accordance with the Shari’ah principles.1

Islamic banking unit (IBU) - a division, department, office, or branch of a conventional branch that
conducts business in accordance with the Shari’ah.

Repurchase agreements - the amortized cost of borrowings in the form of a sale of securities to
another bank/counterparty with an agreement to repurchase (i.e., buy back) these securities at a
fixed price on a specified future date.

Residential Real Estate Price Index (RREPI) – an indicator of changes in the prices of residential
properties in the Philippines over time. The growth rate of the index measures house price
inflation.

1
RA No. 11439 (An Act Providing for the Regulation and Organization of Islamic Banks).
 vi
Shari’ah – the practical divine law deduced from its legitimate sources: the Qur'an, Sunnah,
consensus of Muslim scholars (Ijma), analogical deduction (Qiyas) and other approved sources of
Islamic law. Shari'ah defines a set of rules and principles governing the overall Islamic financial
system.

Sustainable finance – any form of financial product or service that integrates environmental, social
and governance criteria into business decisions that support economic growth while providing
lasting benefit for both clients and society and reducing pressures on the environment. This also
covers green finance, which is designed to facilitate the flow of funds toward environmentally
friendly economic activities as well as climate change mitigation and adaptation projects.

Sustainable Finance Taxonomy - a tool to classify whether an economic activity is

environmentally and socially sustainable and guides different stakeholders in making informed
investment or financing decisions.

Trust – a relationship or arrangement whereby a person called a trustee is appointed by a person

called a trustor to administer, hold and manage the funds or property of the trust or for the benefit
of a beneficiary.

Trust business – any activity resulting from a trustor-trustee relationship (trusteeship) that involves
the appointment of a trustee by a trustor for the administration, holding, and management of the
trustor’s funds and properties by the trustee for the use, benefit, or advantage of the trustor or
others called beneficiaries.

C. Financial and other prudential ratios

Basel III Leverage Ratio (BLR) – the ratio of capital (i.e., Tier 1 capital) to the exposure measure,
composed of on-balance sheet exposures, derivatives, securities financing transactions and off-
balance sheet items. The BLR is designed to act as a supplementary measure to risk-based capital
requirements aimed at restricting the build-up of leverage in the banking sector.

Capital adequacy ratio (CAR) – the ratio of total qualifying capital to risk-weighted assets
computed in accordance with the risk-based capital adequacy framework. The current capital
framework incorporates credit risk (Circular No. 280 dated 29 March 2001), market risk (Circular No.
360 dated 03 December 2002), operational risk (Circular No. 538 dated 4 August 2006), capital
conservation buffer (Circular No. 781 dated 15 January 2013), countercyclical capital buffer (Circular
No. 1024 dated 06 December 2018), and higher loss absorbency capital requirement for domestic
systemically important banks (D-SIBs) (Circular No. 856 dated 29 October 2014, as amended).

CET1 ratio – the ratio of regulatory CET1 capital to risk-weighted assets.

Cost-to-income ratio – the ratio of non-interest expenses, net of impairment losses, to total
operating income.

Deposits-to-loans ratio – the ratio of total deposits to total loan portfolio, exclusive of interbank
loans.

Earning asset yield – the ratio of interest income to average earning assets.

Efficiency ratio – measures the ability of the bank to generate income using its assets. It is the
percentage of total expenses to total revenues.

Funding cost – the ratio of interest expenses to average interest-bearing liabilities.

Interest spread – the difference between earning asset yield and funding cost.

Liquid asset ratio – the ratio of liquid assets to total assets.

vii

Liquid asset-to-deposit ratio – the ratio of liquid assets to total deposits.

Liquidity coverage ratio (LCR) – the ratio of high-quality liquid assets to total net cash outflows.

Minimum liquidity ratio (MLR) – the ratio of a bank’s or a quasi-bank (QB)’s eligible stock of liquid
assets to its total qualifying liabilities. This is applicable to standalone thrift banks, rural and
cooperative banks, and QBs.

Net interest margin (NIM) – the ratio of net interest income to average earning assets.

Net stable funding ratio (NSFR) – the ratio of a covered bank’s/QB’s available stable funding to its
required stable funding.

Non-interest income to total operating income ratio – the ratio of non-interest income to total
operating income.

NPL coverage ratio – the ratio of allowance for credit losses on loans to total NPLs.

NPL ratio – the ratio of NPLs to total loans (gross of allowance for credit losses), inclusive of interbank
loans.

Return on assets (RoA) – the ratio of net profit or loss to average assets.

Return on equity (RoE) – the ratio of net profit or loss to average capital.
 viii

PROLOGUE
The Report on the Philippine Financial System is a semestral report prepared by the Supervisory Policy
and Research Department, Financial Supervision Sector (FSS), of the Bangko Sentral ng Pilipinas (BSP).
This is submitted by the Governor to the President and the Congress, pursuant to Section 39 (c), Article
V of Republic Act (RA) No. 7653 or The New Central Bank Act, as amended by RA No. 11211 and other
pertinent laws.

RA No. 11211 expanded the BSP's supervisory powers over money service businesses, credit granting
businesses and payment system operators. Meanwhile, RA No. 11127 (The National Payment Systems
Act) mandated the BSP to oversee the payment systems in the country. Moreover, RA No. 11439 (An Act
Providing for the Regulation and Organization of Islamic Banks) mandated the BSP to regulate and
supervise the operations of Islamic banks and Islamic banking units in the Philippines.

The report analyzes insights from various periodic reports submitted by BSP-supervised and regulated
financial institutions to the FSS’ Department of Supervisory Analytics. As of June 2024, these institutions
consisted of 478 banks with 12,889 branches and other offices, 1,531 non-bank financial institutions with
15,379 branches, and one offshore banking unit.

Effective 03 July 1998 under Section 130 of RA No. 7653, the BSP's supervisory and regulatory powers
over certain non-bank financial institutions were turned over to the Securities and Exchange
Commission for corporations and partnerships and the Department of Trade and Industry for single
proprietorships. Supervision and regulation over building and loan associations were also transferred to
the Home Guarantee Corporation effective 07 February 2002, in accordance with Section 94 of RA No.
8791 (The General Banking Law of 2000).
 HIGHLIGHTS
OF THE REPORT

1
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
2
2 HIGHLIGHTS OF THE REPORT

The Philippine banking system sustains

its growth momentum, providing strong
stimulus to the domestic economy and
reinforcing trust and confidence in the
financial system.

T
he robust performance of the Philippine banking system continued in the first
half of 2024. This was marked by sustained growth in assets, loans, deposits,
and earnings, along with strong capital and liquidity positions, buoyed by the
country’s improving economic condition1 and continued banking reforms. The
share of the banking sector to the financial system’s total resources increased
further to 83.4 percent. This placed banks in a position to support the growth of
the domestic economy, delivering financial products and services to businesses and Filipino
households.

The total assets of the banking system reached ₱26.2 trillion in June 2024, recording a 12.4-
percent growth year-on-year (y-o-y). This was faster than the 9.1-percent increase in June
2023 and the 11.0-percent pre-pandemic growth rate. The expansion was largely funded by
domestic deposits and channeled mostly to lending and investment activities collectively
accounting for 81.6 percent of the system’s total assets over the reference period.

₱26.2 trillion ₱14.3 trillion

in Total assets in Total loans
in June 2024 in June 2024

Banks’ loan portfolio expanded further with

sustained lending to households and key Banks remain the
productive sectors. This reflected strong
consumer and business confidence on the back pillar of the
of a positive economic outlook and solid
macroeconomic fundamentals. Gross total loans Philippine financial
grew by 12.4 percent to ₱14.3 trillion in June
2024, largely driven by the 23.3-percent growth system, providing
in loans to households for consumption and 12.1-
percent growth in loans to the real estate sector, strong support for
respectively. The real estate sector remained
the largest recipient of bank loans, accounting the development
for 18.3 percent (or ₱2.6 trillion) of the system’s
total loans. This was followed by households and growth of the
with a share of 13.3 percent (₱1.9 trillion),
wholesale and retail trade with 10.5 percent (₱1.5
economy.
trillion), electricity, gas, steam, and air-
conditioning supply with 9.11 percent (₱1.305 trillion), and manufacturing with 9.06 percent

1
Philippine Statistics Authority. (2024, August 08). GDP expands by 6.3 percent in the second quarter of 2024 [Press
release]. https://psa.gov.ph/content/gdp-expands-63-percent-second-quarter-2024
3 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

HIGHLIGHTS OF THE REPORT

(₱1.297 trillion). The broad-based credit expansion highlights banks’ predominant role in the
continued development and growth of the economy. The ratio of banks’ credit-to-gross
domestic product2 improved from 54.9 percent in June 2023 to 56.4 percent, in June 2024.

₱488.1 billion ₱1.7 trillion

in MSME loans in AFRD loans
in June 2024 in June 2024

The banking system provided strong credit support to marginalized and priority sectors in
the country, contributing to the continued promotion of inclusive growth for all Filipinos.
Bank financing for micro, small, and medium enterprises (MSMEs) reached a new peak of
₱488.1 billion in June 2024, surpassing the ₱461.4 billion in June 2023. Similarly, based on
preliminary data as of June 2024, banks allocated 192.4 percent (₱1.7 trillion) of their total
loanable funds (₱912.7 billion) for agriculture, fisheries, and rural development (AFRD)
financing, as prescribed under Republic Act (RA) No. 11901 or the AFRD Law. This was an
increase from the 36.4 percent (₱3.1 trillion) AFRD compliance rate recorded in June 2023
(total loanable funds of ₱8.4 trillion) on account of a shorter reference cut-off date in
computing the total loanable funds as provided under the law, i.e., from 18 August 2023 to
the reporting date as of end-June 2024 and from 20 April 2010 to the reporting date as of
end-June 2023.

3.5% Loan quality remains

NPL ratio
in June 2024
satisfactory, with a low
NPL ratio and adequate
provisions for potential
95.4% losses in banks’
NPL coverage
ratio portfolios.
in June 2024

Loan quality remained satisfactory despite the increase in non-performing loans (NPLs). The
combined effect of challenges from post-pandemic recovery and elevated borrowing costs
due to the high interest rate environment affected the paying capacity of both business and
individual borrowers. The NPLs of the banking system grew by 14.8 percent to ₱502.4 billion
in June 2024, higher than the peak of ₱495.7 billion in May 2024, and faster than the 3.9-
percent growth in June 2023. This translated to an NPL ratio of 3.5 percent during the
period, a marginal increase from 3.4 percent a year ago. Nonetheless, easing market
conditions particularly the moderation of inflationary pressures is seen to provide relief and
improve bank borrowers’ repayment capacity. Meanwhile, banks’ credit standards

2
This refers to the proportion of gross total loans to annualized GDP, at current prices.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
4
4 HIGHLIGHTS OF THE REPORT

remained intact, supported by sound risk governance, robust strategies, and precautionary
measures, including the beefing up of provisioning to manage potential loan losses. The
NPL coverage ratio of the banking system stood at 95.4 percent in June 2024.

Capital and Liquidity

₱19.5 trillion ₱190.3 billion buffers exceed
in Total deposits in Net profit domestic and global
in June 2024 for June 2024 standards.

Remarkable growth was also seen in banks’ deposits, providing stable funding for their
operations. Strong depositor confidence, particularly from resident individuals and private
corporations, enabled banks to reach ₱19.5 trillion in deposits in June 2024. This increase
had a faster rate of 9.5 percent compared to 8.1 percent in June 2023. Capital base likewise
grew stronger by 10.6 percent from ₱2.9 trillion in June 2023 to ₱3.2 trillion in June 2024. The
profitable operations of banks contributed to their robust capitalization. The system’s
consolidated net earnings increased by 4.1 percent from ₱182.8 billion in June 2023 to ₱190.3
billion in June 2024. This solid performance was accompanied by ample capital and
liquidity buffers that exceeded domestic and global standards, allowing banks to support
their expanding operations and risk-taking activities. The results from the latest BSP stress
tests likewise affirmed banks’ resilience, recording post-shock capital adequacy ratio above
10.0 percent under assumed credit and market stress scenarios, including a potential
downturn in the real estate sector.

US$70.6 billion US$356.9 million

in Total FCDU assets in FCDU Net profit
in June 2024 for June 2024

Other areas of bank operations sustained satisfactory performance in June 2024. Foreign
currency deposit unit (FCDU) and trust operations both recorded double-digit growth in
assets, accounting for 15.8 percent and 25.2 percent, respectively, of the banking system’s
total. The total FCDU assets expanded by 14.0 percent to US$70.6 billion (₱4.1 trillion), driven
by strong deposit generation particularly from resident deposits. Majority of these assets
were investments at 40.3 percent (US$28.4 billion) and loans at 28.5 percent (US$20.1
billion). In June 2024, investments picked up, while lending remained muted due to tighter
credit conditions, elevated interest rates, and a generally weaker credit demand. Despite
the subdued FCDU lending, the NPL ratio remained low at 1.3 percent while the NPL
coverage ratio was kept high at 171.4 percent. Overall, FCDU operations continued to be
profitable, posting a net profit of US$356.9 million for the period ending in June 2024.
5 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

HIGHLIGHTS OF THE REPORT

₱6.6 trillion ₱4.1 billion

in Total Trust assets in Trust Net profit
in June 2024 for June 2024

Meanwhile, total trust assets rose by 12.9 to ₱6.6 trillion in June 2024. These assets remained
domestic-oriented and highly liquid. In terms of accountabilities, agency and trust accounts
comprised 54.7 percent (₱3.6 trillion) and 32.3 percent (₱2.1 trillion), respectively, of the total.
Unit investment trust funds (UITFs) continued to be the preferred investment choice among
trust clients. In terms of accountabilities, agency and trust accounts held 54.7 percent (₱3.6
trillion) and 32.3 percent (₱2.1 trillion), respectively. By product, UITFs continued to draw
investors, with share reaching 13.4 percent (₱882.9 billion) of the total trust accountabilities.
In June 2024, the total contributions and number of Personal Equity and Retirement
Account (PERA) contributors reached ₱457.6 million and 5,686, respectively. These
expanded by 24.4 percent and 5.3 percent although slower compared to the growth rates of
30.0 percent and 15.9 percent in June 2023. The industry’s growth and sustained profitability
was supported by the conducive operating environment. For the period ending in June
2024, the trust industry recorded a 12.3-percent increase in net profit, reaching ₱4.1 billion on
the back of higher trust income from trust and agency accounts.

The BSP’s continued implementation of financial reforms paved the way for sustained
resiliency for the Philippine banking system and prepared banks to take on a bigger role in
the domestic economy by serving their clients’ businesses and households, ultimately
improving the financial future of every Filipino.

Financial reforms help sustain the resilience

of the banking sector, enabling banks to
take a bigger role in the domestic economy.
6

THE PHILIPPINE
BANKING
SYSTEM
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
8
THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

The Philippine banking system sustains its growth

momentum, recording solid performance in line
with improved economic conditions.
Expansion in assets, loans, deposits, and earnings continued, enabling
banks to support the growing demand of their clients as well as contribute
to the development of the economy through financing of key productive
sectors in the country, including households.

Prudent credit management and sound corporate governance supported

by adequate capital and liquidity buffers, likewise, helped banks in
maintaining their resilience, providing cushion against potential shocks
arising from the prolonged high interest rate environment and inflationary
pressures.

Capital ₱3.1 trillion

CAR (solo) 16.1%
Loans, gross CET1 ratio (solo) 15.0% Net profit ₱190.3 billion
RoE 12.1%
₱14.3 trillion RoA 1.5%
NPL ratio 3.5%
NPL coverage ratio 95.4%

LCR (solo UKB) 183.3%

NSFR (solo UKB) 137.0%
Deposits
₱19.5 trillion

Net FX to
Assets regulatory
capital 2.0%
₱26.2 trillion

Asset growth momentum continued, propelling sustained lending, and investing activities.
 REPORT ON THE PHILIPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
9 THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

B
anks’ total assets reached ₱26.2 trillion in June 2024, growing at a faster
pace by 12.4 percent year-on-year1 (y-o-y) compared to the 11.0-percent pre-
pandemic growth rate2 and the 9.1-percent growth in June 2023, as shown
in Figure 1. This double-digit growth was consistent with the upbeat
industry outlook and continued domestic economic recovery3.

PBS T A

UKBs hold the T

6 9

lion share of
bank assets,
which were
mostly in the
form of loans.

The system's asset mix were mostly in the form of loans4, net of credit allowance, comprising
52.8 percent (₱13.8 trillion) share. Meanwhile, the shares of investments5 and cash and due
from banks stood at 28.7 percent (₱7.5 trillion) and 10.5 percent (₱2.7 trillion), respectively.
The growth in total assets was largely driven by the universal and commercial bank (UKB)
industry, accounting for the lion’s share of 93.9 percent (₱24.6 trillion) as of June 2024. Over
the same period, the shares of thrift banks (TBs), rural and cooperative banks (RCBs), and
digital banks (DGBs) stood at 4.0 percent (₱1.1 trillion), 1.7 percent (₱439.2 billion), and 0.4
percent (₱104.1 billion), respectively.

Robust loan growth supports the broad-based lending activities of banks, including those
targeting marginalized sectors.

The gross total loan portfolio (TLP) maintained its growth trajectory despite the high interest
rate environment. It rose by 12.4 percent to ₱14.3 trillion as presented in Figure 2. This
double-digit growth, which can be attributed to improving macroeconomic fundamentals 6
and strong consumer and business confidence7, surpassed the 8.8-percent rise in June 2023

1
All the discussed growth rates and reporting periods pertain to y-o-y and as of June 2024, respectively, unless
otherwise stated. Discussions were also based on the available data and information at the time of preparation.
2
The pre-pandemic compounded annual growth rate was computed using December data from 2015-2019.
3
Based on results of the 2023 Banking Sector Outlook Survey (BSOS), most of the respondent banks expect their
assets, deposits, loans, and net earnings to grow double-digit in the next two years (2024-2025), ranging between
10.0 and 20.0 percent.
4
These include interbank loans receivable (IBL) and reverse repurchase (repo).
5
These were comprised of investments in debt and equity securities and derivatives and equity investments in
subsidiaries, associates, and joint ventures, net of allowance for credit losses, as applicable.
6
The increase in credit coincided with improving economic activity, as real gross domestic product (GDP)
accelerated to 6.3 percent in Q2 2024 from the adjusted 5.8-percent growth rate recorded in Q1 2024.
7
Based on the BSP’s Q2 2024 Senior Bank Loan Officers’ Survey (SLOS), the diffusion index (DI) method showed a
higher net increase in loan demand from both enterprises and households, compared to previous quarter.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
0
THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

and continued to inch closer to the 13.8-percent pre-pandemic growth rate.

igure 2
PBS Total Loans
as of end - periods indicated in billion P pesos growth in percent

Total loans, gross (L S)

1 ,500.0 16.0
Total loans, gross y-o-y growth rate (R S) Tot al loans
14,319.5
14,000.0
12.4 12.0

10,500.0
8.8
8.0
,000.0

4.0
3,500.0

- - -
Dec-21 Dec-22 Dec-23 Jun-23 Jun-24

Increasing credit activity is likely to continue

as demand remains firm, supported by strong
macroeconomic fundamentals.
As indicated in the latest surveys of the Bangko Sentral ng Pilipinas (BSP), the upbeat
lending activity is expected to continue, driven by the higher loan demand from both firms
and households given banks’ more attractive financing terms and improved economic
conditions. 8,9,10 The ratio of banks’ credit to GDP rose from 54.9 percent in June 2023 to 56.4
percent in June 2024. 11

Banks maintained their broad-based lending, serving the financial requirements of their
clients (Figure 3). As of June 2024, loans to the real estate sector accounted for 18.3 percent
(₱2.6 trillion) of the system’s gross TLP. Households (13.3 percent share, or ₱1.9 trillion), and
other productive sectors, particularly wholesale and retail trade (10.5 percent, or ₱1.5 trillion),
electricity, gas, steam, and air-conditioning supply (9.11 percent, or ₱1.305 trillion), and
manufacturing (9.06 percent, or ₱1.297 trillion) collectively held 42.0 percent (₱6.0 trillion) of
the banking system’s gross TLP. Loans to these five sectors grew in June 2024, with loans to
households consistently recording the highest growth rate at 23.3 percent, followed by loans
to the real estate sector at 12.1 percent.

Reasons for the higher loan demand of firms were increased inventory and accounts receivable financing needs,
as well as improvement in economic outlook while households cited banks' more attractive financing terms,
consumption, and housing investment as reason for the increased credit demand.
8
Based on the BSP’s Q2 2024 SLOS
9
Based on the BSP’s Q2 2024 Consumer Expectations Survey (CES), the overall consumer sentiment remained
optimistic for the next 12 months.
10
Based on the BSP’s 2023 BSOS, respondent banks remained upbeat, expecting double-digit growth in their loan
portfolios in the next two years.
11
The ratio of banks’ credit-to-GDP in June 2024 went up to 56.4 percent from 54.9 percent in June 2023. This ratio
refers to the proportion of gross total loans to annualized GDP at current prices.
 REPORT ON THE PHILIPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

Figure 3 shows that banks largely catered to domestic borrowers, with resident non-
financial private corporations taking nearly half of the TLP at 46.1 percent (₱6.6 trillion). The
shares of resident individuals and resident financial private corporations stood at 21.9
percent (₱3.1 trillion) and 9.8 percent (₱1.4 trillion), respectively.12 Across banking industries,
UKBs continued to provide the bulk of the borrowing requirements of the public, with 92.5
percent share (₱13.2 trillion) of the TLP. The TB, RCB, and DGB industries provided the
remaining share at 5.4 percent (₱768.9 billion), 1.9 percent (₱272.6 billion), and 0.2 percent
(₱28.3 billion), respectively.

Banks strongly supported the growth and development of marginalized sectors of the
economy particularly farmers; fisherfolks; and micro, small and medium enterprises
(MSMEs). 13 As prescribed under Republic Act (RA) No. 11901 or the AFRD Law, banks
allocated 192.4 percent14 (₱1.7 trillion) of their total loanable funds (₱912.7 billion) for
agriculture, fisheries, and rural development (AFRD) financing as of June 2024. This was an
increase from the 36.4 percent (₱3.1 trillion15) AFRD compliance rate recorded in June 2023
(total loanable funds of ₱8.4 trillion) on account of a shorter reference cut-off date in

Banks play a pivotal role in the growth and

development of the marginalized sectors of
the economy, providing credit access to
farmers, fisherfolks, and MSMEs.
12
These include resident banks.
13
These include farmers, fisherfolk, agrarian reform beneficiaries, agrarian reform communities, settlers, agricultural
lessees, amortizing owners, farmworkers, fish workers, owner cultivators, compact farmers, tenant farmers, and
members of their household and their MSMEs, as well as agriculture cooperatives, and farmer’s and fisherfolk’s
organizations and associations in good standing.
14
Based on the preliminary reports submitted by banks to BSP.
15
The revised June 2023 figure was due to amendments of reports submitted by banks.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

computing the total loanable funds as provided under the law, i.e., from 18 August 2023 to
the reporting date as of end-June 2024 and from 20 April 2010 to the reporting date as of
end-June 2023.16 Relatedly, the BSP continues to monitor the credit allocation of banks to
the MSME sector even after the expiration of the mandatory credit allocation for the sector.
Bank financing for MSMEs reached a new peak of ₱488.1 billion in June 2024, surpassing the
₱461.4 billion recorded in June 2023.

Exposures to the real estate sector moderate, remaining largely in the form of loans.

The real estate exposures (REEs) of UKBs and TBs reached ₱3.2 trillion in June 2024 on a
consolidated basis, accounting for 12.1 percent of the banking system’s total assets.17 These
exposures rose by 3.4 percent during the period, slower than the 5.0-percent increase in
June 2023 and the 13.2 percent pre-pandemic growth rate. The easing trend was due to the
continued decline in real estate investments since September 2023.18

As illustrated in Figure 4, real estate loans (RELs) accounted for majority of exposures at 88.2
percent (₱2.8 trillion). Meanwhile, real estate investments contributed 11.8 percent (₱371.1
billion).

B B
Banks maintain a
modest level of real
estate exposures,
with an easing
share in real estate
investments.
Source DSA

Nearly two-thirds of RELs were commercial RELs at 62.6 percent (₱1.7 trillion). These grew at
a faster rate of 6.3 percent in June 2024, compared with 3.4 percent in June 2023.
Commercial RELs were mainly used to finance land development, acquisition, construction,
and/or improvement of commercial real estate units (82.8 percent, or ₱1.4 trillion), and
largely with residual maturity of over one year to five years (44.8 percent or ₱780.6 billion).

Meanwhile, residential RELs held the remaining 37.4 percent (₱1.0 trillion) of total RELs.
These grew by 8.9 percent in June 2024, higher than the 4.2 percent in June 2023.
Residential RELs were at the mid-end (46.0 percent, or ₱479.6 billion) and low-cost (39.4
percent, or ₱411.2 billion) housing categories, and majority, or 52.1 percent (₱542.9 billion),
has a residual maturity of over 10 years.

More than half, or 55.5 percent (₱1.5 trillion), of RELs were unsecured while 40.2 percent (₱1.1
trillion) were secured, of which ₱953.8 billion (34.2 percent) were secured by real estate

16
The law mandates banks to allocate 25.0 percent of their total loanable funds to AFRD-related financing. The
AFRD financing refers to loans and investments that will increase (the) income of an agricultural and fisheries
household, thereby promoting agricultural sector productivity and competitiveness, as well as sustainable
development of rural communities.
17
The share of REEs of UKBs and TBs to the banking system’s total assets has been declining for the past years.
This stood at 12.1 percent in June 2024, 13.1 percent in June 2023 and 13.6 percent in June 2022.
18
The largest recorded decline in real estate investments was recorded in June 2024 at 18.4 percent, higher than
March 2024’s 10.8-percent contraction.
 REPORT ON THE PHILIPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
3 THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

mortgage (REM). The remaining 4.3 percent (₱119.8 billion) was loans to real estate
developers/construction companies that are covered by contracts to sell.19

RELs grow amid an uptick in demand for

both commercial and residential RELs.
Alongside the increasing trend, banks satisfactorily managed the quality of their RELs. As of
June 2024, low non-performing loan (NPL) ratios were recorded for both commercial and
residential RELs at 2.3 percent (from 2.1 percent in June 2023) and 6.8 percent (from 7.4
percent in June 2023), respectively.

The continued growth of both commercial and residential RELs is in line with property
market experts’ upbeat outlook.20 Similarly, the latest BSP survey revealed a continued rise
in prices across all housing types in the Philippines,21 reinforcing industry experts’ favorable
prospects for the property sector.

As real estate activities remain an integral component of the country’s domestic economy,
the BSP regularly conducts monitoring and surveillance of banking system exposures to the
sector. This helps identify emerging risks and vulnerabilities in the banking system. The
latest BSP real estate stress test
(REST) indicated the continued
resilience of the banking
BSP regularly monitors risks
system under an assumed
downturn in the property
and vulnerabilities in the
market. Bank RELs also
remained below the 25.0-
system, including banks’ real
percent REL limit,22 based on
the latest available data.
estate exposures.

The double-digit expansion in consumer loans continues amid an upbeat consumer

outlook.

Consumer loans of UKBs and TBs comprised 19.6 percent of the banking system’s total
loans. These loans grew by 19.7 percent to ₱2.8 trillion in June 2024 on a solo basis (Figure 5),
driven by substantial increase in credit card financing. The growth in consumer loans, which
has been in double digits since September 2022, surpassed the 13.6-percent rise in June
2023 and the 15.7-percent pre-pandemic growth rate. This trend is in line with the prevailing
economic conditions in the country.

19
RELs for socialized and low-cost housing reached 541.2 billion in June 2024, accounting for 19.5 percent of the
total. These RELs increased by 4.6 percent in June 2024, higher than the 0.9-percent increase in June 2023. Loans
granted to individual households for their residential units accounted for 6. percent of these loans.
20
According to Collier’s Property Market Report–Office for Q2 2024, the demand for commercial space, particularly
in the Metro Manila, posted a higher net take-up compared to the previous quarter. owever, the recent
Philippine Offshore Gaming Operators (POGO) ban will likely have an impact on office take-up. Similarly, Collier’s
Property Market Report–Residential for Q2 2024 indicated that vacancy will likely increase. Rents and prices are
also expected to adjust in response to the POGO ban. The impact of the POGO ban, though, is seen to be
temporary and may not have a lasting effect on demand.
21
Based on the BSP’s Q2 2024 Residential Real Estate Price Index (RREPI)
22
The REL limit, which applies to all UKBs, covers commercial RELs extended to finance the acquisition and
development of land and the construction of buildings and structures, including housing units for sale/lease, for
income-generating purposes.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

Growth in
consumer
loans
continues, in
line with the
prevailing
economic
conditions.
By composition, residential RELs accounted for 37.0 percent (₱1.0 trillion) of consumer loans
in June 2024. Credit card receivables (CCRs), motor vehicle loans (MVLs), salary-based
general-purpose consumption loans (SBGPCLs), and other consumer loans held the
remaining share at 28.4 percent (₱797.2 billion), 19.9 percent (₱557.4 billion), 13.0 percent
(₱365.9 billion), and 1.7 percent (₱47.5 billion), respectively. Figure 5 illustrates the
comparative levels of consumer loans, including the share for each type, as of June 2024 vis-
à-vis June 2023.

Banks also reported double-digit growth rates across all types of consumer loans, CCRs had
the highest growth rate at 28.8 percent (₱178.5 billion). Meanwhile, residential RELs, MVLs,
SBGPCLs, and OCLs grew by 13.5 percent (₱123.5 billion), 18.7 percent (₱87.6 billion), 20.5
percent (₱62.2 billion), and 27.2 percent (₱10.2 billion), respectively. This increasing trend is
expected to continue amid the strong consumer finance outlook and banks’ strategic
positioning to cater to the rising demand for consumer loans.23

Loan quality remains satisfactory, characterized by a low NPL ratio despite increased credit
risk.

The banking system maintained satisfactory Precautionary

loan quality despite the uptick in NPLs. The
combined effect of challenges from post- measures are in
pandemic recovery and higher interest rate
environment affected bank borrowers’ paying place such as
capacity. In June 2024, the total NPLs of the
banking system grew by 14.8 percent to ₱502.4 beefing up reserves
billion (Figure 6).24 This was faster compared
with the 13.2-percent pre-pandemic growth to absorb potential
rate and the 3.9-percent increase in June 2023.
Consequently, the NPL ratio slightly rose from losses in portfolios.
3.4 percent in June 2023 to 3.5 percent in June
2024, as NPL growth outpaced the 12.4-percent increase in loans. Banks responded by

23
Based on the BSP’s Q2 2024 SLOS, banks anticipate a net increase in household loan demand, driven by rising
household consumption and more attractive lending terms of banks. Similarly, the percentage of households
who intend to apply for a loan in the next 12 months reached 12.4 percent in Q2 2024 from 12.3 percent in the
same period last year based on the BSP’s Q2 2024 CES.
24
This was higher than the previous peak of ₱495. billion in May 2024.
 REPORT ON THE PHILIPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

raising the allowance for credit losses by 7.7 percent (₱34.4 billion), resulting in an NPL
coverage ratio of 95.4 percent over the same period.

PBS NPL A L

NPL A L
NPL NPL

0
9

3 3

Notwithstanding this, banks continued to implement sound credit management practices,

supported by robust strategies, and precautionary measures to mitigate the increase in
credit risk. Easing market conditions and moderation of inflationary pressures are seen to
provide relief and improve bank borrowers’ repayment capacity, thus, enabling banks to
maintain low NPLs and NPL ratio.

Investments continue to grow and remain largely issued by the government.

Total investments rose by 10.6 percent to ₱7.3 trillion in June 2024.25 This was faster than
the 9.2-percent increase in June 2023 but remained relatively unchanged compared with
the pre-pandemic growth rate. These investments were largely composed of securities
measured at amortized cost (AC) at 54.8 percent (₱4.0 trillion), followed by securities
measured at fair value through other comprehensive income (FVOCI) at 37.8 percent (₱2.8
trillion). Meanwhile, securities measured at fair value through profit or loss (FVTPL) had a
minimal share of 7.4 percent (₱539.8 billion). Nearly two-thirds, or 74.3 percent (₱5,427.3
billion), of the total investments were issued by the national government.

As shown in Figure 7, investments across all types posted an increase, with notable
movement towards securities measured at FVOCI, which can be attributed to bank’s
strategy to manage liquidity amid expectations of easing interest rate environment. As of
June 2024, the share of securities measured at FVOCI rose by 21.9 percent to 37.8 percent,
improving from 34.3-percent share in June 2023. In contrast, the share of securities
measured at AC declined to 54.8 percent from the 60.0-percent share in June 2023 due to

25
These exclude equity investments in subsidiaries/associates/joint ventures.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
6
THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

the meager 1.0-percent growth in June 2024. Meanwhile, the share of securities measured
at FVTPL grew by 44.8 percent from 5.6 percent in June 2023 to 7.4 percent in June 2024.

The continued expansion in TDs fuels steady growth in deposits

Sustained depositor confidence provided banks with a reliable funding source for their
operations, As of June 2024, the banking system’s total deposits grew by 9.5 percent to ₱19.5
trillion (Figure 8). This growth was faster than the 8.1-percent in June 2023 inching closer to
the 10.3-percent pre-pandemic growth rate. The double-digit growth in certificate of time
deposits (TDs) enabled banks to expand their deposit base, which was predominantly peso
denominated (83.1 percent, or ₱16.2 trillion) and mainly sourced from resident depositors
(99.1 percent, or ₱19.3 trillion). This structure shields the banking system from significant
funding withdrawals arising from global financial market fluctuations and reduces banks’
exchange rate risk and vulnerability.

PBS T

Domestic-based
deposits mitigate
risks and
vulnerability 8
9

arising from
external market
fluctuations.

As shown in Figure 9, savings deposits comprised 43.2 percent (₱8.4 trillion) of the banking
system’s total deposits in June 2024. This was followed by TDs with a 28.8-percent share
(₱5.6 trillion) and demand deposits and negotiable order of withdrawal (NOW) with 27.7-
percent share (₱5.4 trillion). Long term negotiable certificates of deposits (LTNCDs) had a
minimal share of 0.3 percent (₱49.0 billion). The continued growth in TDs, which rose by 23.9
percent in June 2024, was due to depositor’s strong preference for high-yielding
investments amid a high interest rate environment. By counterparty, resident depositors
REPORT ON THE PHILIPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

particularly individuals and private corporations had the highest share of deposits at 48.5
(₱9.5 trillion) and 31.5 percent (₱6.1 trillion), respectively.

PBS T T

B B

G
T 9
6 8 S
88 8 38 0
3

9 6
8
N 6 0
0
3

Other funding sources continued to be minimal, with bills payable and bonds payable
representing 4.1 percent (₱937.6 billion) and 2.4 percent (₱544.9 billion), respectively, of the
banking system’s total liabilities in June 2024.

Banks are well capitalized and highly liquid, with key risk-based capital and liquidity ratios
above regulatory standards.

The capital position of banks further grew in June 2024, rising by 10.6 percent to ₱3.2 trillion.
However, this expansion was slower compared with the 11.0-percent increase in June 2023
and the 13.4-percent pre-pandemic growth rate. The increase in retained earnings of 14.8
percent and capital stock of 5.0 percent contributed to the growth in banks’ overall capital.

Risk-based capital ratios remained well above the

minimum thresholds of 10.0 percent set by the BSP Banks maintain
and 8.0 percent set by the Bank for International
Settlement (BIS). As of June 2024, the banking robust capital
system’s solo and consolidated capital adequacy
ratios (CARs) stood at 16.1 percent and 16.6 percent, and liquidity
respectively. All banking industries maintained high
CARs during the period, similarly well above the positions to
minimum 10.0-percent requirement. In addition, the
common equity tier 1 (CET1) ratios of the banking support their
system were 15.0 percent on a solo basis and 15.5
percent on consolidated basis in June 2024, both risk-taking
exceeding the BSP’s and the BIS’ minimum
thresholds.
activities.
Moreover, the Basel III leverage ratios (BLRs) of UKBs settled at 9.1 percent on a solo basis
and 9.6 percent on a consolidated basis. These were higher than the 5.0-percent BSP
regulatory requirement and the 3.0-percent international standards. This underscores
banks’ ability to withstand financial stress without impairing their solvency.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
8
THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

The strong capitalization of banks affirms their capacity to support lending and investing
activities and absorb potential losses from credit portfolios. Relatedly, the results from the
latest BSP stress tests confirmed the banking system’s resilience to assumed stressed
scenarios, including a potential downturn in the property sector.

BSP uses other financial soundness indicators to

monitor capital and liquidity of banks.
In terms of liquidity buffers, banks maintained high liquidity, indicating their robust position
to meet funding requirements. The latest data show that the UKB industry’s liquidity
coverage ratio (LCR) and net stable funding ratio (NSFR) both surpassed the 100.0-percent
regulatory threshold. As of June 2024, UKBs recorded LCRs of 183.3 percent on a solo basis
and 184.2 percent on a consolidated basis. Meanwhile, their solo and consolidated NS Rs
were 13 .0 percent and 13 .2 percent, respectively. or smaller banks, the minimum liquidity
ratios (MLRs) of stand-alone TBs, RBs, and CBs in June 2024 exceeded the 20.0-percent
minimum requirement.

Complementing risk-based capital and key liquidity ratios (i.e., LCR, NS R, MLR), the BSP
also monitors other financial soundness indicators (FSIs) of the banking system (Figure 10).
On capital, these include the ratios on capital to asset and the net NPL to capital. For
liquidity, the relevant ratios are liquid assets to total assets, liquid assets to deposits, and
deposits to loans.26

PBS S I L

As of June 2024, the capital to asset and net NPL to capital ratios stood at 12.1 percent and
7.2 percent, respectively, a slight drop from 12.3 percent and 7.2 percent a year ago. These
indicators show that banks maintained an acceptable level of capital, despite its marginal
decline due to expansion in lending and investment activities.

26
Based on the International Monetary und (IM )’s inancial Soundness Indicators Compilation Guide, the
NPL to capital ratio is an important gauge of a bank’s ability to absorb losses from NPLs that are not covered by
specific loan loss provisions. The capital to asset ratio measures how much of an asset’s funding comes from the
bank’s resources. On liquidity, the liquid assets to total assets ratio offers insight into the liquidity available for
banks to address both expected and unexpected cash outflows while the liquid assets to deposits ratio indicates
the extent to which banks could handle short-term fund withdrawals without encountering liquidity challenges.
inally, the ratio of deposits to loans shows how much of a bank’s gross loans (excluding interbank loans) is
funded by its deposits.
 REPORT ON THE PHILIPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
9 THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

Meanwhile, ratios of liquid assets to total assets and liquid assets to deposits remained high
at 38.1 percent and 51.1 percent, respectively, despite the marginal decline from 40,1 percent
and 52.5 percent in June 2023. These ratios affirm banks’ strong liquidity position, indicating
their ability to withstand liquidity challenges. In addition, ratio of deposit to loans stood at
139.6 percent, a slight decline from 143.4 percent in June 2023. The high ratio, which remains
above 100.0 percent, indicates that banks’ lending is primarily funded by deposits rather
than more volatile borrowings.

These ratios provide the BSP with a more a comprehensive view of the banking system’s
capital, liquidity profile and funding source.

Another FSI monitored by the BSP is the ratio of UKBs’ net foreign exchange (FX) position to
regulatory capital. This ratio remained low, slightly increasing from 1.9 percent in June 2023
to 2.0 percent in June 2024, indicating banks active management of their FX exposures.

Banks sustain profitability, buoyed by robust interests earned from their lending activities.

Bank earnings continued to be driven by interest income from their lending activities
particularly loans to private corporations and households. For the period ending in June
2024, net profit rose by 4.1 percent to ₱190.3 billion, slower compared with 27.7 percent in
June 2023. This was due to high funding costs that tapered the robust interests earned by
banks amid the high interest rate environment.

Amid improved macroeconomic conditions and strong consumer and business sentiment,
total interest income rose by 20.0 percent (₱121.4 billion) to ₱729.1 billion in June 2024. This
increase was driven by robust earnings from lending particularly loans to private
corporations and individuals, which grew by 10.1 percent (₱22.8 billion) and 45.5 percent
(₱61.9 billion), respectively. Collectively, these earnings accounted for 74.7 percent (₱90.7
billion) of the total interest income earned for the period. Interest income from investments
also contributed to banks’ profitability, rising by 23.9 percent (₱31.1 billion). This growth was
on account of higher yields from securities measured at FVOCI (up by 56.9 percent, or ₱22.0
billion) and at AC (up by 7.4 percent, or ₱6.4 billion).

The solid earnings from lending activities and investments helped banks offset higher
interest expenses. Interest expenses rose by 31.3 percent (₱53.0 billion) due to high funding
costs, particularly for deposits and bills payable, which expanded by 32.6 percent (₱45.1
billion) and 27.1 percent (₱4.1 billion), respectively. The increase in interest expenses on
deposits was primarily attributed to high interest expenses on TDs.27 Meanwhile, the
increase in interest expenses on bills payable resulted from bank’s strategy to utilize
alternative funding sources.

Fees and commissions also contributed to the profitable operations of banks. This increased
by 10.8 percent (₱7.5 billion) and helped temper operating costs, particularly for
compensation and administrative expenses.28

27
Interest expenses on TDs have been growing double digit since August 2022.
28
Total non-interest expenses grew by 10.2 percent ( 31.5 billion) in June 2024, driven by compensation/fringe
benefits, taxes and licenses, and other administrative expenses, which grew by 12.5 percent (₱12.6 billion), 18.0
percent (₱6.8 billion), and 8.1 percent (₱9. billion), respectively. Collectively, these accounts comprised 84.2
percent (₱28 .2 billion) of the total non-interest expense (₱341.2 billion) of the banking system in June 2024.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
0
THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

Banks generate better returns amid

improved macroeconomic conditions and
strong customer base.
The satisfactory operating performance of banks enabled the system to achieve better
returns. For the reference period ending in June 2024, return on assets (RoA) and return on
equity (RoE) stood at 1.5 percent and 12.1 percent, respectively, a marginal decline from 1.6
percent and 12.8 percent, respectively, in June 2023. Moreover, the net interest margin
improved from 4.0 percent in June 2023 to 4.3 percent during the period. The cost-to-
income ratio slightly increased from 55.2 percent in June 2023 to settle at 56.6 percent in
June 2024. This indicates banks continued operational efficiency.

Contingent accounts accelerated, driven by substantial growth in derivatives and credit line
commitments.

Off-balance accounts29 amounted to ₱18.2 trillion in June 2024, recording a faster increase
of 22.3 percent (₱3.3 trillion) compared with the 5.6 percent in June 2023. The double-digit
growth in contingent accounts was mainly due to the substantial increase in domestic
transactions, with derivates and commitments rising by 29.3 percent (₱1.7 trillion) and 47.2
percent (₱922.6 billion), respectively.

The uptick in derivatives was on account of the growth in the notional amount of X
contracts30, which went up by 29.3 percent (₱1.3 trillion). The notional amount of X
contracts made up 85.3 percent (₱5. trillion) of the total derivatives in June 2024.
Meanwhile, commitments were mainly driven by credit card lines, which expanded by 57.6
percent (₱773.9 billion), indicating continued growth in the credit card market amid upbeat
consumer sentiment.

In terms of composition, derivative instruments (41.7 percent or ₱7.6 trillion) and trust
department accounts (22.6 percent or ₱4.1 trillion) made up 64.3 percent of the total off-
balance sheet account. The remaining shares were in the form of commitments (15.8
percent or ₱2.9 trillion), bank guarantees (3.8 percent or ₱69 . billion), trade-related
accounts (1.2 percent or ₱218.0 billion), and others31 (15.0 percent or ₱2. trillion).

All contingent accounts recorded an increase in June 2024. Majority had double-digit
growth, except for trust department accounts.32 (Note A detailed discussion on the trust
operations is presented in a separate section of this report).

The extensive network supported bank operations, with an increasing number of branches
and BLUs nationwide.

The total number of bank offices increased from 13,335 in June 2023 to 13,367 in June 2024,
making banking services accessible to more Filipinos. This growth was primarily driven by
the expansion of other offices, which include branches and branch-lite units (BLUs). In June

29
These represented 69.6 percent of the banking system’s total assets in June 2024, an increase from 64.0 percent
( 14.9 trillion) in June 2023. The total off-balance sheet accounts were predominantly comprised of resident
transactions, accounting for 84.1 percent ( 15.3 trillion).
30
These exclude spot X contracts.
31
Others include securities held by the bank proper under custodianship, comprising 13.0 percent ( 2.4 trillion).
32
Bank guarantees went up by 23.2 percent ( 131.3 billion) while trade-related accounts and trust department
accounts inched up by 30.2 percent (₱50.6 billion) and 1.2 percent (₱48.6 billion), respectively.
REPORT ON THE PHILIPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

2024, there were additional 44 units, bringing the total number of other offices to 12,889.
However, the number of head offices declined from 490 in June 2023 to 478 in June 2024
due to mergers, consolidations, and closures.

Figure 11 presents the total number of offices of the banking system across banking
industries, including their distribution nationwide, as of June 2024.

PBS B B I

B B
B B B B B

B
B

B
B B

UKBs remained the industry leader in terms of the number of bank offices, with a total of
7,170, composed of 44 head offices and 7,126 other offices. This was followed by RCBs with
3,581, which include 386 head offices and 3,195 other offices. The number of DGBs was six
but the BSP will lift the moratorium on the granting of DGB licenses starting January 2025
to accommodate four additional players.

By region, bank offices remained concentrated in Luzon. The National Capital Region (NCR)
hosted the largest number of offices at 3,756 offices (28.2 percent), followed by
CALABARZON (Region IV-A) with 1,916 (14.4 percent), and Central Luzon (Region III) with
1,392 (10.5 percent). In contrast, the Bangsamoro Autonomous Region in Muslim Mindanao
(BARMM) had the smallest presence, with only 45 offices, accounting for 0.3 percent of the
banking system’s total offices.

Banks enhance their products and services

through innovation and digital adoption,
offering EPFS to cater to the financial needs of
their clients and onboard the tech-savvy
generation.
The BSP-supervised financial institutions (BSFIs), including banks, have been ramping up
initiatives to widen their reach through digital innovations. Among these initiatives is the
use of electronic devices to cater to the growing demand of their clients and onboard the
tech-savvy generation. According to the latest data, the number of BSFIs offering
automated teller machines (ATMs), both the card and facility, increased from 166 in June
2023 to 172 in June 2024. The number of BSFIs providing other type of electronic payment
and financial services (EPFS) such as PESONet, mobile banking, internet banking (retail and
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

THE BANKING SECTOR – THE PHILIPPINE BANKING SYSTEM

corporate), Instapay, electronic money issuers (EMIs), e-KYC onboarding, QR Ph, e-money (e-
wallet), point of sale (POS) facility, among others, likewise increased.

Figure 12 presents the number of BSFIs offering EFPS as of June 2024 vis-à-vis June 2023.

E P S EP S
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
23
THE BANKING SECTOR – FOREIGN CURRENCY DEPOSIT UNIT OPERATIONS

FOREIGN CURRENCY
DEPOSIT UNIT
OPERATIONS
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
24
THE BANKING SECTOR – FOREIGN CURRENCY DEPOSIT UNIT OPERATIONS

The robust growth in foreign currency deposit unit

(FCDU) assets and deposits points to increasing
foreign currency activities in support of key
productive sectors in the country.

Asset expansion, funded by residents’ deposits, has enabled banks to

continue catering the financial needs of their clients and support the
lending and investment activities of their regular banking units.

Despite concerns over tight financing conditions and foreign exchange

movement, lending to key productive sectors continued, with notable
growth recorded in FCDU loans to the electricity, gas, steam, and air-
conditioning supply, manufacturing, and transportation sectors. Amid this
development, loan quality remained satisfactory, with a low non-performing
loan ratio and ample provisions. Investments also picked up as banks aim to
capitalize on expected policy rate cuts.

Overall, FCDU operations demonstrated resilience, generating a net profit

despite higher funding costs.

Assets
Net profit
US$70.6 billion
US$356.9 million
(₱4.1 trillion)
(₱20.9 billion)

Investments,
gross
US$29.0 billion Deposits
(₱1.7 trillion) US$55.2 billion
(₱3.2 trillion)

Loans, gross
US$17.3 billion NPL ratio 1.3%
(₱1.0 trillion) NPL coverage ratio
171.4%
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
25
THE BANKING SECTOR – FOREIGN CURRENCY DEPOSIT UNIT OPERATIONS

Double-digit growth in assets bolsters RBU funding.

he total assets1 of FCDUs surged to US$70.6 billion (₱4.1 trillion) in June 2024, an
increase of 14.0 percent year-on-year (y-o-y) 2. This surpassed the 6.2 percent rise
in June 2023 and the 6.6 percent pre-pandemic growth rate3. The expansion
was mainly driven by deposits and largely channeled to loans to regular banking
units (RBUs), which rose significantly by 98.8 percent from US$8.3 billion (₱460.3
billion) in June 2023 to US$16.6 billion (₱971.6 billion) in June 2024.

FCDU A C

US

As shown in Figure 1, banks maintained a diversified asset mix. Majority was in the form of
investments in securities at 40.3 percent (US$28.4 billion), loans at 28.5 percent (US$20.1
billion), and cash and due from banks at 6.7 percent (US$4.7 billion) as of June 2024.
Collectively, these accounts comprised 75.5 percent of FCDUs’ total assets during the
reference period, a decrease from the 85.3-percent share in June 2023.

The asset mix remains diversified despite

a notable rise in loans to RBUs.
FCDUs’ loans to RBU account, which form part of other assets, have been increasing since
the easing of FCDU regulations in 2021.4,5 The share of loans to RBUs rose from 13.5 percent
(US$8.3 billion) in June 2023 to 23.5 percent (US$16.6 billion) of the total FCDU assets in June
2024. In terms of share to other assets 6, loans to RBUs reached 95.9 percent over the same
period, higher than the 91.7 percent in June 2023.

1
This amount is net of due from head office, branches, and agencies as well as due from FCDU and RBU.
2
All the discussed growth rates and reporting periods pertain to y-o-y and as of June 2024, respectively, unless
otherwise stated. Similarly, discussions were based on the available data and information at the date of report
preparation.
3
The pre-pandemic compounded annual growth rate was computed using December data from 2015-2019.
4
BSP Circular No. 1134 dated 28 December 2021 (Amendments to the Relevant Regulations on Foreign Currency
Deposit System - Phase 2)
5
BSP Circular No. 1134 dated 28 December 2021 (Amendments to the Relevant Regulations on Foreign Currency
Deposit System - Phase 2)
Noble, L.W.T. (2021, December 31). Central bank relaxes regulations on foreign currency deposit system, Business
World Online. https://www.bworldonline.com/top-stories/2021/12/31/420937/central-bank-relaxes-regulations-
on-foreign-currency-deposit-system/
6
The share of other assets to FCDU’s total assets stood at 24.5 percent, 14.7 percent, and 8.8 percent in June 2024,
June 2023, and June 2022, respectively.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
2
THE BANKING SECTOR – FOREIGN CURRENCY DEPOSIT UNIT OPERATIONS

The number of banks with FCDU and expanded FCDU (EFCDU) licenses increased to 77 in
June 2024 from 76 in June 2023. Universal and commercial banks had the largest number
of licenses at 44, of which two are FCDUs and 42 are EFCDUs. Meanwhile, there were 19
thrift banks, 11 rural and cooperative banks, and three digital banks with FCDU licenses.

Banks shift to tradeable investments amid expectations of rate cuts.

Total investments went up by 2.9 percent (US$814.2 million) to US$29.0 billion (₱1.7 trillion)
in June 2024, a reversal from the 0.1-percent decline a year ago. The expansion was largely
driven by increases in financial assets held for trading (HFT) by 76.9 percent (US$1.0 billion)
and financial assets measured at fair value through other comprehensive income (FVOCI) by
9.6 percent (US$932.5 million). Debt securities measured at amortized cost (DSMAC)
continued to account for the largest share of FCDU’s total investments at 55.1 percent
(US$16.0 billion), followed by securities measured at FVOCI at 36.8 percent (US$10.7 billion).
Financial securities HFT remained modest at 8.1 percent (US$2.3 billion).

Figure 2 presents the comparative share of investments per account classification as of June
2024 vis-à-vis June 2023.

Banks acquire more investments

particularly tradeable debt securities.

FCDU I

2 24
US 2

The observed shift to tradeable investments particularly financial assets HFT, which are
actively bought and sold for short-term gains, and financial assets measured at FVOCI,
which allows for potential asset appreciation, aligns with banks’ strategy to capitalize on
higher bond prices from expectations of forthcoming policy rate cuts.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
2
THE BANKING SECTOR – FOREIGN CURRENCY DEPOSIT UNIT OPERATIONS

By counterparty, investments issued by non-residents7 rose by 3.6 percent (US$0.5 billion, or

₱832.8 billion) to US$14.2 billion in June 2024, a reversal from the 3.5-percent decline a year
ago. These investments accounted for 49.0 percent of the total investment portfolio, a
marginal increase from the 48.7-percent share in June 2023. The rise in non-resident issued
securities was driven by issuances from central banks and governments as the United States
(US) Treasury expanded bond auctions in early 2024 to help cover the federal budget
deficit8.

FCDU I I C

Investments in securities issued by the Philippine government, mostly consisting of US

dollar-denominated Republic of the Philippines (ROP) bonds, grew by 1.4 percent to US$12.1
billion (₱706.7 billion) in June 2024. This expansion was slower compared to the 9.4 percent
in June 2023. As illustrated in Figure 3, Philippine government securities comprised 41.6
percent of the FCDUs investment portfolio, a decline from the 42.2-percent share in June
2023. Resident private corporations, which account for 9.3 percent (up from 9.1 percent in
the previous year) of the FCDU investment portfolio, also increased by 6.0 percent to US$2.7
billion (₱158.7 billion). This was a reversal from the 17.5-percent decline in June 2023.

Lending activities decelerate amid market pressures.

Total loans9, 10 declined by 2.4 percent to US$17.3 billion (₱1.0 trillion) in June 2024. This was a
reversal from the 7.5-percent growth in the same period last year and the 10.9-percent pre-
pandemic growth rate. The combination of tighter credit conditions11, elevated interest

7
Non-residents include central banks, central governments, non-financial corporations, banks, public sector
entities, and multilateral agencies. The investments in securities issued by non-residents consist of securities
issued by central banks and central governments with a share of 57.3 percent (US$8.1 billion) and corporations
with 27.5 percent (US$3.9 billion).
8
Financial Times (2024, February 01). US Treasury to hold largest-ever bond auctions to plug budget deficit.
https://www.ft.com/content/df64622c-ecb0-46a9-8f26-84dac321d07f
9
This total includes loans and receivable-others as well as loans and receivables arising from repurchase
agreements (RA), certificates of assignment/participation with recourse (CA/PR), and securities lending and
borrowing (SLB) transactions.
10
This total excludes interbank loans receivable (IBL) and loans to BSP.
11
The results of the Q2 2024 Senior Bank Loan Officers’ Survey showed that lending standards for businesses
generally reflected a net tightening mainly due to the deterioration of borrowers’ profiles and the profitability of
banks’ portfolios.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
28
THE BANKING SECTOR – FOREIGN CURRENCY DEPOSIT UNIT OPERATIONS

rates, and reduced borrowing demand from some sectors dampened FCDUs’ lending
activities.

As shown in Figure 4, resident borrowers particularly from the productive sectors continued
to tap banks for their financing requirements. As of June 2024, FCDUs’ largest borrowers
were from the electricity, gas, steam, and air-conditioning supply industry at 14.3 percent
(US$2.5 billion). This was followed by manufacturing at 13.2 percent (US$2.3 billion),
transportation and storage at 5.4 percent (US$927.7 million), real estate activities at 5.2
percent (US$894.7 million), and information and communication at 3.0 percent (US$511.8
million). Collectively, these sectors held a share of 41.0 percent (US$7.1 billion, ₱414.9 billion)
of FCDUs’ total loans.

FCDU E A Loans to certain sectors

experienced a decline amid the
high interest rate environment. As
of June 2024, loans to finance
R 33 5 electricity, gas, steam, and air-
N US 5 42
conditioning supply, and financial
and insurance activities, contracted
sharply by 16.2 percent (US$476.2
million) and 47.1 percent (US$444.8
million), respectively. Nonetheless,
E
US 2 2 3
US 2 4
the decline was tempered by
T US 2 double-digit growth in loans to the
R US 8 4
I US 5 8 transportation and storage, real
F
US 4 5
US 4
estate, and construction sectors by
A F US 4 5 84.7 percent (US$425.4 million), 38.7
O US 8 84
These include loans arising from repurhase agreement ( ), certi cate of
percent (US$249.5 million), and
100.2 percent (US$103.3 million),
assignments participation with recourse (C ), and securites and lending
borrowing (SLB) transations
Others include loans to non residents, individuals for consumption

respectively.
purposes,and other productive sectors, and loans arising from C , and SLB
transactions.

3 3 Nearly a third, or 37.1 percent, of

4 4 S US 5 24 FDCUs’ total loans was granted to
US 4 25 4
US 8 83
non-resident borrowers. This
reflected 3.6-percent rise from
23 3
US$5.4 billion in June 2023 to
US$5.6 billion in June 2024.13

12

By tenor, loans with long-term maturity continued to account for nearly half of FCDUs’ total
loans at 46.4 percent (US$8.0 billion) as of June 2024. Meanwhile, the shares of medium-
and short-term loans stood at 23.3 percent (US$4.0 billion) and 30.3 percent (US$5.2 billion),
respectively. This structure underscores the sustained demand for financing large-scale
projects, particularly in sectors showing robust growth such as power and energy,
transportation, real estate, and construction.

12
Loans to non-residents include loans arising from reverse repurchase transactions.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
2
THE BANKING SECTOR – FOREIGN CURRENCY DEPOSIT UNIT OPERATIONS

Banks sustain satisfactory loan quality, with a low NPL ratio and ample provisions.

Non-performing loan (NPL) ratio slightly increased from 1.2 percent in June 2023 to 1.3
percent in June 2024 (Figure 5). This was due to the combined effect of the 2.4-percent
contraction (US$422.7 million) in loans and 1.9-percent growth (US$4.1 million) in NPLs.

FCDU NP NP C R

Movements in the FX exchange rate and higher borrowing costs may have contributed to a
more cautious borrowing environment, as businesses and individuals focused on managing
debt servicing costs. In June 2024, NPLs to the real estate, manufacturing, and agriculture,
forestry, and fishing sectors, rose by 4,800.3 percent (US$28.8 million), 47.5 percent (US$24.8
million), and 4.8 percent (US$4.2 million), respectively. The deterioration in the loans to the
real estate sector was driven in part by higher borrowing costs, which further strained bank
borrowers’ paying capacity. The pronouncement of the Philippine Offshore Gaming
Operators (POGOs) ban amid regulatory crackdowns can temporarily affect property values,
rental rates, and operations of real estate businesses.

Meanwhile, non-performing loans of non- Banks continue to

resident borrowers dropped from US$23.8
million in June 2023 to zero in June 2024. This improve their credit
tempered the overall rise in NPLs of FCDUs.
risk management
Overall, loan quality remained satisfactory
despite the uptick in NPLs. This was supported
practices and
by banks’ prudential credit risk management,
risk governance standards, and precautionary
maintain the
measures, including the beefing up of quality of their
provisions. As of June 2024, the NPL coverage
ratio of the industry stood at 171.4 percent. portfolios.

Deposits reach an all-time high, fueled by TDs.

Total deposits hit a new record in June 2024, rising by 12.6 percent (US$6.2 billion) to reach
US$55.2 billion (₱3.2 trillion). This exceeded the 5.1-percent increase in June 2023 and the
6.1-percent pre-pandemic growth rate. The expansion was mainly driven by a double-digit
increase in time certificate of deposits (TDs), particularly from residents. As of June 2024,
97.6 percent (US$53.9 billion) of total deposits were sourced from resident individuals with a
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
3
THE BANKING SECTOR – FOREIGN CURRENCY DEPOSIT UNIT OPERATIONS

share of 53.1 percent (US$29.3 billion) and private corporations with 36.8 percent (US$20.3
billion). This deposit composition insulates the industry against potential funding
withdrawals by common lenders in the global financial markets.

The deposit mix shifted notably towards TDs, which comprised more than half of total
deposits at 55.3 percent (Figure 6), up from the 45.9-percent share in the previous year. TDs
rose by 35.6 percent (US$8.0 billion) from US$22.5 billion in June 2023 to US$30.5 billion in
June 2024 as investors sought to secure higher returns in anticipation of further monetary
policy easing. Conversely, the proportion of savings and demand deposits dropped to 42.1
percent (US$23.2 billion), and 2.6 percent (US$1,4 billion), respectively. This deposit structure
signals a growing preference toward higher-yielding deposits such as TD by depositors.

TDs outpace
savings
deposits amid
depositors’
preference
toward higher-
yielding
investments.

Other sources of borrowings remained modest with bills and bonds payable at 11.2 percent
(US$7.9 billion) and 7.0 percent (US$4.9 billion), respectively, of total FCDU liabilities. Both
bills and bonds payable, however, recorded substantial increases of 19.7 percent (US$1.3
billion) and 44.6 percent (US$1.5 billion), respectively, in June 2024.

Robust capitalization was also observed, with a 7.7-percent growth (US$25.09 million) in
June 2024, primarily due to the 18.2-percent (US$98.5 million) reduction in unrealized losses
booked under other comprehensive income. This improvement offset the 28.7-percent drop
(US$144.7 million) in net income. Retained earnings likewise supported capital growth,
increasing by 103.9 percent (US$71.0 million) and reversing the 35.4-percent (US$37.5
million) contraction in June 2023. This places banks’ capital structure in a much healthier
position to withstand economic downturns, absorb potential losses, and fuel future growth.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
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THE BANKING SECTOR – FOREIGN CURRENCY DEPOSIT UNIT OPERATIONS

Figure 7 shows the composition of FCDU liabilities and capital as of June 2024 compared to
June 2023 and prior years.

FCDU C

Muted earnings due to high funding costs suppress overall performance.

Net profit dropped by 29.0 percent (US$145.7 million) to US$356.9 million (₱20.9 billion)
for the period ending in June 2024, reversing the incremental growth of 0.9 percent in June
2023. This decline was largely on account of high funding costs particularly interest expense
on TDs. The 8.6-percent increase in total interest income 13 lagged behind high borrowing
costs, with interest expense on TDs14 rising by 79.6 percent during the same period.

Subdued lending activity contributed to reduced profit for the period. As a result, the net
interest margin narrowed from 2.1 percent in June 2023 to 1.6 percent in June 2024. The rise
in non-interest earning assets (loans to RBUs) also impacted the FCDU profitability, with
return on assets and cost-to-income ratio weakening to 1.2 percent and 16.4 percent,
respectively, in June 2024 from 1.8 percent and 13.3 percent in June 2023.

Meanwhile, higher FX profits (up by 378.9 percent, or US$99.5 million), along with lower
operating expenses15, helped lift earnings. Fees and commission income also contributed to
the increase in FCDUs’ net profit, rising by 3.9 percent (US$1.9 million) from US$47.8 million
in June 2023 to US$49.7 million in June 2024.

13
Total interest income grew by 8.6 percent to US$1.2 billion (₱72.6 billion) for the period ending in June 2024,
driven by banks’ lending and investment activities. Interest income from loans (include IBL), DSMAC, and
securities measured at FVOCI accounted for 48.6 percent (US$601.4 million, ₱35.2 billion), 23.9 percent (US$295.3
million, ₱17.3 billion), and 15.5 percent (US$192.3 million, ₱11.3 billion) of the total.
14
Total interest expense grew by 53.2 percent to US$872.5 million, for the six months ending in June 2024. Interest
expense on TDs accounted for 59.8 percent of the total, rising up by 79.6 percent (US$231.3 million), followed by
interest expense on bills payable at 20.6 percent (up by 34.3 percent, US$46.0 million).
15
Total operating expenses dropped by 4.1 percent (US$3.7 million) for the period ending in June 2024. Other
administrative expenses comprised the largest portion at 67.1 percent (US$57.9 million), followed by
compensation/fringe benefits at 16.7 percent (US$14.4 million) and fees and commission expenses at 8.1 percent
(US$7.0 million).
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
32
THE BANKING SECTOR – TRUST OPERATIONS

TRUST
OPERATIONS
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
33
THE BANKING SECTOR – TRUST OPERATIONS

Sustained asset expansion indicates that the

industry continues to cater to the trust clients’
growing demand.

The industry’s operations improved, with double-digit asset growth

driven by agency accounts. These assets were highly liquid, particularly
deposits in banks and investments in securities, and accounted for a
quarter of the banking system’s total assets. Alongside robust asset
growth, the industry remains committed to innovating its products and
services to cater to the changing preferences of its clients and expand its
reach to onboard the tech-savvy generation.

Overall, the trust industry reported profitable operations, driven by strong

revenues from fees and commissions which helped offset trust expenses.

Meanwhile, the total Personal Equity and Retirement Account (PERA)

contributions and the number of contributors continued to grow,
although at a slower pace, as inflation and higher living costs influenced
the savings and investment decisions of most Filipinos.

Assets Agency ₱3.6 trillion

₱6.6 trillion Trust ₱2.1 trillion
Investments, gross
₱4.4 trillion

PERA
Contributions ₱457.6 million
UITFs Contributors 5,686
₱882.9 billion Net profit
Participants 2,570,138 ₱4.1 billion
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
34
THE BANKING SECTOR – TRUST OPERATIONS

Double-digit growth in agency accounts continued to drive asset expansion.

T
otal assets reached ₱6.6 trillion in June 2024, with a growth rate
of 12.9 percent year-on-year1 (y-o-y). This is faster than the 10.4-
percent pre-pandemic growth rate2 but slower than the 14.9
percent growth rate in June 2023 (Figure 1). The 13.7-percent
increase in placements in agency accounts drove the asset
expansion. This trend is consistent with the positive growth
outlook for assets under management as industry leaders anticipate
monetary policy easing in the near term.3
F
Trust Asset Compos t on
PH

T
₱ 0 4 00

000 0

20 0
4 000 0 4

2
00
2 000 0

00 00
2 22 2 2 24
C LHS I LHS
L LHS O LHS
T RHS

S S A SA
RHS
LHS

Trust assets, which represented 25.2

percent of the banking system’s total Sustained asset
assets in June 2024, remained highly-
liquid, with investments in securities4 growth helped
and cash and due from banks5
comprising 65.9 percent (₱4.4 trillion) the industry
and 21.5 percent (₱1.4 trillion) of the
industry’s total assets, respectively.
actively promote
Meanwhile, loans, net of allowance for
credit losses, continued to be minimal
and innovate trust
at 2.0 percent (₱134.9 billion).
products and
On the back of robust asset growth,
the industry has been actively
services in the
promoting and innovating trust
products and services through its 29
Philippine market.
trust entities6 to meet the changing
preferences of clients and leverage
technology to onboard the tech-savvy generation.

1
All the discussed growth rates and reference period pertain to y-o-y, and as of June 2024, respectively. unless
otherwise specified. Discussions were also based on the available data and information at the time of preparation.
2
The pre-pandemic compounded annual growth rate (CAGR) is computed using December data from 2015-2019.
3
Source: Trust Officers Association of the Philippines (TOAP)
4
These were net of amortization and allowance for credit losses, as applicable, and accumulated gains/losses.
5
These consisted of deposits in banks (₱1.4 trillion), as well as cash and due from BSP (₱425.4 million).
6
These exclude six trust entities that were inactive (four trust departments [TDs] of universal and commercial
banks [UKBs], one TD of thrift bank [TB], and one investment house [IH]).
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
35
THE BANKING SECTOR – TRUST OPERATIONS

As shown in Figure 2, these trust entities consist of 20 trust departments (TDs)

of banks7, which hold 62.2 percent (₱4.1 trillion) of the industry’s total assets,
and nine non-bank financial institutions (NBFIs). Of these NBFIs, there are
seven trust corporations (TCs) and two investment houses (IHs), which
comprise 36.0 percent (₱2.4 trillion) and 1.8 percent (₱118.1 billion) of the
industry’s total assets.

Figure 2
Asset Share of Trust Entities to Total Trust Assets
as of June 2024 in billion PH pesos share in percent

16 TDs of 4 TDs of 2 7
UKBs TBs IHs TCs

61.8 1.8 36.0

0.4

Source: DSA Total trust assets 6,609.4

Government securities propelled the growth of investments.

Amid a high interest rate environment, the trust industry grew its portfolio of
investments in government securities. This growth can be attributed with the
continued preference of most trust clients in government securities, and their
cautious investment stance to manage risk.

In June 2024, the industry’s investment portfolio, which was mainly residents’
issuances8 and debt securities9, grew by double-digit rates to ₱4.4 trillion, up
by 12.9 percent or ₱499.2 billion. This growth rate exceeds the 9.0-percent
growth rates posted in June 2023 and the 13.1-percent pre-pandemic growth
rate. This was on account of the 28.3-percent (₱359.7 billion) increase in
investments in government securities 10, which have been steadily growing for
the past years. Despite this trend, the industry’s investment mix remained
largely from private corporations’ issuances at 47.3 percent (₱2.1 trillion),
although declining from 52.0 percent (₱2.0 trillion) in June 2023. In contrast,

The industry remains optimistic, expecting

growth opportunities with the global
easing of policy rate stance.

7
These comprised 16 UKBs and four TBs.
8
The share of investments issued by residents stood at 88.8 percent (₱3.9 trillion) in June 2024, declining from 90.6
percent (₱3.5 trillion) in June 2023. These comprised securities issued by the Philippine national government (NG)
and other government agencies, banks, and private corporations.
9
Investments in debt securities, which grew by 14.0 percent to ₱3.0 trillion, accounted for the majority of the
industry’s investments at 68.4 percent in June 2024. Meanwhile, investments in equity securities stood at 31.6
percent (₱1.4 trillion), up by 10.6 percent over the same period.
10
Investment in government securities accounted for 37.4 percent, 33.0 percent, and 31.2 percent, respectively, of
the industry’s total investments in June 2024, June 2023, and June 2022. In June 2024, investments in government
securities rose by 28.3 percent, surpassing the 15.4 percent growth recorded in June 2023.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
36
THE BANKING SECTOR – TRUST OPERATIONS

the share of government securities, which include securities issued by the

national government (NG) and other government agencies, rose to 37.4
percent (₱1.6 trillion) in June 2024 from 33.0 percent (₱1.3 trillion) in June
2023. The details are presented in Figure 3.

Meanwhile, as to classification
of investments (Figure 3), 71.8
percent (₱3.1 trillion) was in
securities measured at fair value
through profit or loss (FVTPL),
while the remaining 23.3
percent (₱1.0 trillion) and 4.9
percent (₱214.0 billion) were in
securities measured at fair value
through other comprehensive
income (FVOCI) and securities
measured at amortized cost
(AC), respectively. The larger
proportion of FVTPL securities
was mostly unit investment
trust funds (UITFs) and
retirement funds that require a
valuation of their assets at fair
value.11 Despite this, the share of
FVTPL securities has been
declining in recent years due to
increasing UITF redemptions.12
In contrast, FVOCI securities
have been increasing, given
trust clients’ preference for
liquid investments and high
returns.13

Trust clients prefer liquid and high-

yielding investments.

11
Source: TOAP
12
The share of FVTPL securities stood at 71.8 percent, 70.4 percent, and 76.0 percent, respectively, in June 2024, June
2023, and June 2022.
13
The share of FVOCI securities stood at 23.3 percent, 23.6 percent, and 20.2 percent, respectively, in June 2024,
June 2023, and June 2022.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
37
THE BANKING SECTOR – TRUST OPERATIONS

Agency accounts sustained double-digit growth and drove the expansion of

trust accountabilities.

Total accountabilities grew by 12.9 percent and reached ₱6.6 trillion in June
2024, following the sustained increase in placements in agency accounts. This
growth, however, slowed down from 14.9 percent in June 2023, as increasing
competition from brokerage houses, treasury departments of banks, and
fintech players, both domestic and foreign, posed challenges to the industry’s
operations14. As such, trust entities have been continuously improving and
innovating their products and services to better cater to their clients’
changing preferences and financial needs to remain competitive in the
market.15

Notwithstanding this,
Industry leaders
industry leaders see growth
opportunities in Filipinos’
recognize the need to
increased interest in step up their digital
investing and the availability
of seamless digital readiness to attract a
investment platforms that
provide more flexibility, younger generation of
especially for tech-savvy
investors. investors.
As of June 2024, agency accounts continued to account for the largest
portion of total accountabilities at 54.7 percent (₱3.6 trillion), growing by 13.7
percent (₱434.8 billion) from ₱3.2 trillion in June 2023. Trust accounts,
meanwhile, held a 32.3-percent share, growing by 6.4 percent (₱128.2 billion)
trillion from ₱2.0 trillion in June 2023 to ₱2.1 trillion in June 2024. One of the
factors that contributed to the growth in trust accounts was the impact of a
BSP policy16,17 requiring e-money issuers that maintain sizeable e-money
balances to hold a certain percentage of their unencumbered liquid assets in
a trust account.18 Figure 4 provides a comparative presentation of the
industry’s accountabilities.

14
Source: TOAP
15
Source: TOAP
16
BSP Circular No. 1166 dated 07 February 2023 (Amendments to the Regulations on Electronic Money (E-money)
and the operations of Electronic Money lssuers [EMls] in the Philippines).
17
Business World Online (2023, February 09). BSP sets liquidity, capital requirements for e-money issuers.
https://www.bworldonline.com/banking-finance/2023/02/09/503846/bsp-sets-liquidity-capital-requirements-for-
e-money-issuers/
18
Source: TOAP
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
38
THE BANKING SECTOR – TRUST OPERATIONS

F 4
Trust Account t es
2024 202 PH

04

S SA

Growth in UITFs remained muted, with a declining share to total trust

accountabilities.

UITFs reached ₱882.9 billion in June 2024, up by 5.8 percent (₱48.2 billion),
which is an improvement from the 31.9-percent contraction in June 2023.
Despite the reported growth, the share of UITFs to the industry’s total trust
accountabilities continued to decline, dropping to 13.4 percent from 14.3
percent in June 2023 and 24.1 percent in June 2022. The declining share can
be attributed to the continuing impact of the high interest rate environment,
drawing investors to low-risk, short-tenor, and high-yielding investments.19

Along with the reduced share of UITFs, the number of financial institutions
with a UITF license also dropped to 24 in June 2024 from 25 in June 2023.
These financial institutions comprised 13 TDs of UKBs, holding the largest
portion of UITFs at 55.1 percent (₱486.8 billion), eight NBFIs (44.8 percent, or
₱395.4 billion) and three TDs of thrift banks (TBs, 0.1 percent, or ₱0.7 billion).
Most of the UITF assets were invested in FVTPL20 securities at 82.2 percent
(₱726.2 billion), followed by deposits in banks at 17.4 percent (₱153.2 billion).

F
Trust UITFs eve n Num er o P rt c p nts
PH

2 0
24 4

0 0

0 776

2 22 2 2 24 2 22 2 2 24

ITF ITF
S SA

19
Source: TOAP
20
Majority of financial assets booked at FVTPL were debt securities issued by the BSP (33.6 percent, or ₱243.9 billion)
and the NG (23.2 percent, or ₱168.5 billion), as well as equity securities issued by resident private corporations (18.4
percent, or ₱133.7 billion).
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
3
THE BANKING SECTOR – TRUST OPERATIONS

In terms of participation, both UITF placements and the number of UITF

participants barely moved, recording minimal growth of 1.6 percent21 (₱11.9
billion) and 3.8 percent (94,680 participants), respectively, to reach ₱776.9
billion and 2,570,138 in June 2024 (Figure 5). In contrast, the accumulated
income, which recorded growth in almost all fund types, rose substantially by
57.5 percent (₱37.2 billion) to ₱106.0 billion, improving the UITFs overall
performance.22 With the anticipated policy rate cuts, the industry expects a
boost in UITFs as trust clients may shift their investments from time deposits
to long-term fixed-income securities, or even to a riskier equity security for
higher returns.23

F
Trust UITF Pr nc p per Fun Type
2024 PH

E u ty
Fun
25 2
32 3 oney
r et
Fun
464 4
5 8
F
2

By type of UITFs, money market funds continued to be the preferred UITF

product of most trust clients. As of June 2024, the share of money market
funds accounted for 59.8 percent (₱464.4 billion), with 1,279,830 participants,
surpassing June 2023’s 58.4 percent. As for the other UITF types, the shares of
equity funds, bond funds, and balanced funds stood at 32.3 percent (₱251.2
billion, with 863,132 participants), 4.6 percent ( 35.5 billion, with 397,969
participants), and 3.3 percent (₱25.8 billion, with 29,207 participants),
respectively.24 Figure 6 shows the distribution of UITF principal per fund type
as of June 2024.

21
The UITF placements in equity funds and money market funds expanded by 15.6 percent to ₱251.2 billion and 4.0
percent to ₱464.7 billion, respectively, in June 2024. These increases are a turnaround from the 16.4-percent and
48.0-percent decline recorded in June 2023. In contrast, the UITF placements in bond funds and balanced funds
declined by 10.4 percent and 0.1 percent, respectively, in June 2024.
22
The marked-to-market UITF portfolio is impacted by changes in interest rates and foreign exchange rates,
affecting the net asset value per unit across different types of UITFs. Gains from investments in securities of equity
and money market funds largely contributed to the uptick in the total accumulated income of the trust industry.
23
Source: TOAP
24
The percentage shares of bond funds and balanced funds in June 2024 were lower than the previous year’s 5.2
percent and 3.4 percent, respectively. In contrast, equity funds surpassed the 28.4 percent share in June 2023.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
40
THE BANKING SECTOR – TRUST OPERATIONS

Growth of PERA investments moderated.

In June 2024, the total contributions for Personal Equity and Retirement
Account (PERA) reached ₱457.6 million, up by 24.4 percent (₱89.6 million).
The number of contributors for PERA also grew by 5.3 percent (284
contributors) reaching 5,686 contributors. Both growth rates however, slowed
down from the recorded 30.0 percent (total PERA contributions) and 15.9
percent (number of PERA contributors) in June 2023. Inflationary pressures
and higher living costs contributed to the sluggish movement in PERA
investments, with Filipinos prioritizing needs over savings and investments.
This translated to a reduced allocation of their disposable income to long-
term retirement investments such as PERA.25

Inflation pressure and higher living costs

affected the savings and investment
decisions of Filipinos.
As shown in Figure 7, most PERA contributions remained largely from
employed individuals, with total contributions of ₱315.7 million (69.0 percent)
and 4,024 contributors (70.8 percent) as of June 2024. Self-employed
individuals and overseas Filipino workers (OFWs) comprised the remaining
share, with total contributions of ₱63.1 million (880 contributors) and ₱78.8
million (782 contributors), respectively, over the same period.

F
Trust PERA Contr ut ons n Num er o Contr utors
2024 PH

T PERA 4 T PERA

S
OF 0

S
E E 4 024 OF 2

S SP PERA T

Amid the slower take up, the BSP continuously promotes PERA through
active financial literacy programs and campaigns. The Bank also partners
with other financial institutions and government agencies to expand the
PERA ecosystem and enhance its accessibility through digital platforms.
Moreover, the BSP is featuring PERA as a pilot use case for open finance. This
reinforces the BSP’s strong commitment to providing platforms to promote
retirement savings and long-term financial security for Filipinos26.

25
Source: PERA-Technical Working Group (TWG)
26
Source: BSP PERA Technical Working Group
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
4
THE BANKING SECTOR – TRUST OPERATIONS

Profitable operations continued, supported by strong growth in fees and

commissions from trust and agency accounts.

For the period ending in June 2024, the trust industry recorded a net profit of
₱4.1 billion, recovering with a 12.3-percent (₱444.7 million) growth from the
4.5-percent contraction in June 2023. This improvement was mainly from the
14.1-percent (₱1.0 billion) increase in fees and commissions from assets under
management, enabling trust entities to partly offset the rise in their trust
expenses. The industry’s efficiency ratio27, however, weakened to 55.9 percent
in June 2024 from 53.7 percent recorded in June 2023 due to faster growth of
trust expenses (up by 22.8 percent, or ₱954.7 million) compared to trust
income (up by 18.0 percent, or ₱1.4 billion). The double-digit growth in fees
and commissions was largely from trust and agency accounts 28 while trust
expenses were driven by employee wages and benefits, and taxes and
licenses29.

27
Efficiency ratio measures the ability of the bank to generate income using its assets. It is measured as total
expenses as a percentage of total revenue.
28
The upsurge in fees and commissions from trust accounts (17.4 percent, or ₱642.6 million) and agency accounts
(7.8 percent, or ₱250.9 million) largely contributed to the double-digit growth in the industry’s total fees and
commissions in June 2024. Meanwhile, fees and commissions from other fiduciary services (19.3 percent, or ₱67.1
million), advisory/consultancy accounts (228.2 percent, or ₱66.5 million), and special purpose trust (20.0 percent,
or ₱0.3 million) reported growth in the same period.
29
Employee wages and benefits, and taxes, and licenses stood at ₱2.0 billion and ₱873.5 million, respectively, rising
by 18.8 percent (₱314.3 million) and 45.8 percent (₱274.4 million) for the period ending in June 2024.
43 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

POLICY REFORM AGENDA

The Bangko Sentral ng Pilipinas (BSP)’s

long history of financial reforms
contributed to the continued soundness
and resilience of the Philippine banking
system.

T
he BSP is continually enhancing its regulatory and supervisory frameworks
amid the developments in the financial system. It aims to promote an
inclusive and safe financial environment where prudent innovations flourish
and sustainability is mainstreamed. In relation to this, the BSP’s strategic
priorities aimed at promoting institutional stability, digitalization, and
inclusive sustainable finance. These three (3) areas are mutually reinforcing. A
stable financial system contributes to economic growth. Digitalization helps in making the
financial system more efficient, effective, and inclusive. Meanwhile, practicing sustainability
allows the benefits from a stable financial system to be enjoyed, by present and future
generations, thereby contributing to meaningful growth of the economy.

The BSP’s Policy Reforms

Institutional
Stability

Inclusive
Digitalization Sustainable
and
Finance

In the first half of 2024, the BSP issued policies in line with its strategic agenda. First, the
stability of the banking system remains rooted on strong corporate governance and sound
risk management.

The BSP heightened its requirements for banks to manage risks related to money
laundering, terrorist financing, and proliferation financing (ML/TF/PF). In April 2024,
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
44
POLICY REFORM AGENDA

enhanced regulations on Targeted Financial

Sanctions1 (TFS) were issued to strengthen existing
measures on TFS implementation and risk-based
supervision (Box Article 1). Under this regulation,
banks are obligated to freeze without delay all
property or funds of designated persons or any
person/entity designated as a terrorist or one who
The BSP ramps up finances terrorism under United Nations (UN) Security
Council resolutions or applicable laws and
its efforts, with regulations. Supervised entities, including banks, are
also required to submit an electronic report to the
stricter AML BSP within 24 hours of discovering any significant

regulations to ML/TF/PF risk event. A guidance paper2 was released

in June 2024 providing illustrative examples to
ensure the enhance policies, systems, processes, and controls for
beneficial ownership identification and verification.
integrity of the These initiatives aim to uphold the integrity of the
financial system, preventing the banking system from
financial system. being used as a vehicle for ML/TF/PF.

The BSP amended the derivatives licensing framework3 in May 2024, expanding the list of
derivatives activities classified as generally authorized derivatives activity or GADA (Box
Article 2). This amendment considers any financial derivative that is traded as GADA in an
organized market, which would not require any license from the BSP. This will promote
stability in the financial markets as it provides the menu of instrument that market
participants could use to hedge their exposures.

Calibrated cyber resilience efforts combat

cybersecurity threats amid rapid digital
advancements.
Second, on digitalization, the BSP continues to be mindful that alongside the digital
transformation, information technology risks and cybersecurity threats may undermine the
integrity of the financial system. In response, the BSP has been pursuing cyber-resilience
initiatives to preserve public trust and confidence and boost consumer protection. The
recently launched 2024-2029 Financial Services Cyber Resilience Plan4 (FSCRP) outlines the
BSP’s high-level goals and strategies for maintaining the integrity and security of the
country’s financial ecosystem. The passage of Republic Act (RA) No. 12010, or the Anti-
Financial Account Scamming Act5 (AFASA) was instrumental in the implementation of the

1
BSP Circular No. 1193 dated 29 April 2024 (Amendments to Section 9ll/9ll-Q of the Manual of Regulations for
Banks (MORB)/Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) - Money Laundering
(ML)/Terrorist Financing (TF)/Proliferation Financing (PF) Risk Reporting and Notification Requirements)
2
BSP Memorandum No. M-2024-021 dated 20 June 2024 (Guidance Paper on Beneficial Ownership Due Diligence)
3
BSP Circular No. 1194 dated 29 May 2024 (Amendments to Derivatives Regulations of Banks, Quasi-Banks, and
Trust Entities).
4
The BSP launched the Financial Services Cyber Resilience Plan (FSCRP) on 06 August 2024. The FSCRP serves as
a comprehensive roadmap and primary framework aimed at enhancing the resilience of the financial services
sector against cyber threats. It also outlines high-level goals and strategies essential for maintaining the integrity
and security of the country’s financial ecosystem.
5
RA No. 12010 or the AFASA was signed into law on 20 July 2024 and took effect on 11 August 2024.
https://www.officialgazette.gov.ph/2024/07/20/republic-act-no-12010/
45 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

POLICY REFORM AGENDA

FSCRP. The AFASA aims to promote awareness of the proper use of financial accounts and
to protect the public from cybercriminals and criminal syndicates who target financial
accounts or lure account owners into becoming accessories or perpetrators of fraudulent
activities. under Section 23 of the AFASA, a BSP Technical Working Group (TWG) was created
to draft the AFASA implementing rules and regulations (IRR), in coordination with
concerned agencies and upon consultation with relevant stakeholders. The issuance of the
IRR is expected before the end of 2024.

The launch of taxonomy

guidelines to accelerate
financing for eligible
projects and activities
supports the country’s
commitment and SDGs.
Third, the BSP is committed to supporting the country’s climate commitment and
sustainable development goals (SDGs).

To complement the regulatory framework and incentives that support financing of eligible
and sustainable projects and activities, the BSP has issued the Philippine Sustainable
Finance Taxonomy Guidelines 6 (Box Article 3). The issuance of the taxonomy marks an
important step in the Philippine’s sustainability journey, providing supervised entities with
high-level guidance in determining whether an economic activity is environmentally and
socially sustainable and making informed investment or financing decisions.

Moreover, the BSP achieved another milestone with the opening of the first Islamic banking
unit (IBU) and issuance of another IBU license to a commercial bank in the second half of
2024 (Box Article 4). This development reflects increased participation of domestic and
foreign banks in Islamic banking, advancing the national government’s financial inclusion
agenda.

These policy initiatives prepare banks to take on a bigger role in supporting the growth of
the domestic economy, serve their clients, and ultimately contribute to the improvement in
the financial future of every Filipino.

Policy direction for 2024 and beyond

The BSP’s strategic priority areas will continue to guide the prudential measures that would
help equip banks and other supervised financial institutions to rise and navigate the
challenges posed by an evolving banking landscape.

6
BSP Circular No. 1187 dated 21 February 2024 (Philippine Sustainable Finance Taxonomy Guidelines).
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
46
POLICY REFORM AGENDA

The BSP will continue to enhance its corporate governance and risk management standards
to safeguard institutional stability and resilience. These initiatives complement the existing
supervisory frameworks, which consider the supervised entities’ business model, risk profile
and significant activities. The BSP will issue operational resilience standards for supervised
banks in the fourth quarter of 2024 and continue its preparation for the National Risk
Assessment on ML/TF. The BSP will also strengthen its macroprudential oversight and
enhance the stress testing exercise to complement these reforms.

The BSP leverages technology

to digitalize its financial
supervision processes to gain
better and timelier insights.
Similarly, the BSP will continue to play a proactive part in providing a conducive
environment for innovations and digital transformation of the financial system.7 Parallel to
this, the BSP will issue regulations on digital financial marketplace8 , enabling banks and
other qualified BSP-regulated/supervised entities to form strategic and meaningful
partnerships with other financial service providers. This will allow them to offer a range of
select financial products and services through a one-stop-shop digital platform. The BSP will
also explore use cases of artificial intelligence for financial services. Meanwhile, the
digitalization of supervisory processes is a top priority for the BSP in 2024, This will allow BSP
to gain deeper and on-time insights to support evidence-based assessments of the financial
system's inherent risks.

Finally, on the inclusive sustainability agenda, the BSP will strengthen the sustainability-
related information architecture to promote transparency and comparability. The BSP will
amend its regulations to enhance the sustainability disclosure requirements in line with the
adoption of the International Financial Reporting Standards (IFRS) Sustainability Disclosure
Standards.

The taxonomy and disclosure requirements are important policy tools that establish
safeguards to prevent greenwashing.

In partnership with the industry, the BSP will develop climate risk stress testing guidelines
to improve the management of climate and environment-related risks. The BSP will also
explore measures to promote the development of innovative sustainable finance solutions
that are responsive to the country's financing needs for climate change adaptation and just

7
The BSP approved the lifting of the moratorium on the grant of new digital banking licenses in July 2024,, which
will start on 01 January 2025. The BSP will allow a maximum of 10 digital banks (DGBs) to operate in the country.
Since the issuance of the Digital Banking Framework in December 2020, six DGBs have been operating in the
Philippines. With the lifting of the moratorium, an additional four licensees can be accommodated, coming from
either new or converting banks. The decision aligns with the BSP’s mandate of ensuring financial system stability
complemented by greater financial inclusion and digital transformation.
8
Anchored on implementing the Open Finance Framework, the BSP anticipates the emergence of new business
models and arrangements that will further drive innovation and bring more value to customers. The adoption of
a digital marketplace banking model will be underpinned by a sound governance and risk management system,
including an effective information sharing arrangement to ensure that attendant risks are adequately managed,
and consumer interests are protected.
47 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

POLICY REFORM AGENDA

transition. Relative to this, the BSP is finalizing the Guidelines for Sustainability-Themed Unit
Investment Trust Funds (UITFs) by trust entities.

Continued policy reforms and

sustained cooperation and
collaboration with BSP partners to
foster a resilient, dynamic, and
inclusive financial system.
The BSP will continue to pursue progressive prudential policy reforms to strengthen
corporate and risk governance, uphold financial integrity and operational resilience in
supervised financial institutions, promote responsible innovation, and mainstream inclusive
and sustainable finance. The BSP will also work closely with industry partners, stakeholders,
and key government agencies to advocate for necessary legislations.9 The aim is to create a
resilient, dynamic, and inclusive financial system that supports sustainable economic
growth and development in the country.

9
The BSP and other lead government agencies strongly supports the passage of the Bank Deposit Secrecy Law.
 REPORT ON THE PHILIPIPNE FINANCIAL SYSTEM | FIRST SEMESTER 2024
48
BOX ARTICLE 1

Box Article 1

Sustained Risk-Based Targeted Financial Sanctions Supervision

The Philippines is pursuing strategic initiatives to strengthen the implementation of targeted

financial sanctions (TFS) toward maintaining the integrity of the country’s financial system.

In recent years, laws were enacted to strengthen the implementation of TFS on terrorism,
terrorist financing (TF), proliferation of weapons of mass destruction (WMD), and proliferation
financing (PF). These include Republic Act (RA) No. 11479, or the Anti-Terrorism Act of 2020,
and RA No. 11521, which amends the Anti-Money Laundering Act of 2001. These laws, along
with implementing regulations, such as the 2021 Anti-Money Laundering Council (AMLC)
Sanctions Guidelines, provide the legal anchor for the implementation of TFS.

Under these laws and regulations, TFS means both asset freezing and prohibitions to prevent
funds or other assets from being made available, directly, or indirectly, for the benefit of
designated persons and entities.

In the International Standards on Combating Money Laundering and the Financing of

Terrorism and Proliferation1, the Financial Action Task Force (FATF) has cited TFS requirements
in its recommendations and identified “immediate outcomes”.

FATF Recommendation 6 emphasizes that countries should implement TFS regimes in

compliance with the relevant United Nations Security Council Resolutions (UNSCRs) and their
successor resolutions on preventing and suppressing terrorism and terrorist financing.

Meanwhile, FATF Recommendation 7 states that countries should implement TFS to comply
with UNSCRs related to the prevention, suppression, and disruption of proliferation and
financing of WMD.

Immediate Outcome 10 cites measures to prevent terrorists, terrorist organizations, and

terrorist financiers from raising, moving, and using funds; and from abusing the non-profit
organization sector.

Lastly, Immediate Outcome 11 prevents persons and entities involved in the proliferation of
WMD from raising, moving, and using funds, consistent with the relevant UNSCRs. Countries
are assessed in terms of their technical compliance and effectiveness in implementing TFS.

1
Financial Action Task Force (2012) International Standards on
Combating Money Laundering and the Financing of Terrorism &
Proliferation, FATF, Paris, France. https://www.fatf-
gafi.org/content/dam/fatf-
gafi/recommendations/FATF%20Recommendations%202012.pdf.core
download.inline.pdf
49 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

BOX ARTICLE 1

On the supervisory front, the BSP has undertaken TFS-focused reforms to enhance the
effectiveness of TFS implementation. These reforms include (a) enhancing TFS-related regulations
and issuing of guidance papers to provide clear expectations on TFS implementation; (b)
conducting sectoral and institutional risk assessments on TFS risk areas; (c) embedding TFS in the
ongoing supervisory engagements, such as risk-based examinations, thematic reviews, and risk
surveillance activities; (d) organizing capacity-building and literacy programs on anti-money
laundering/countering terrorism and proliferation financing (AML/CTPF) for BSP-supervised
financial institutions (BSFIs) and BSP supervisors; and (e) engaging BSFIs and counterpart
regulators on timely exchange of risk information and alignment of action plans on TFS.

A critical component of TFS supervision is sustaining the BSFIs’ understanding of TFS. For this
purpose, BSP issued Circular No. 1182 dated 10 November 20232 to articulate key supervisory
expectations on TFS implementation. The circular highlights the BSFI’s obligation to freeze
without delay all properties or funds of designated persons and prohibit their access to financial
services or their funds.

Key supervisory expectations on TFS implementation:

prohibit access to
freeze without delay
financial services/funds

At a minimum, the BSFIs are expected to implement TFS-related measures such as (a) adoption
of sanctions policies and procedures; (b) maintenance of sanctions database; (c) conduct of
sanctions screening; (d) adoption of name screening policies and procedures; and (e)
implementation of de-listing and unfreezing orders from the AMLC and the United Nations
Security Council or any of its committees.

The BSP also issued Guidance Papers (GPs) on TFS Implementation3 highlighting best practices,
scope for improvement, and major challenges on TFS implementation. The GPs also identified
emerging typologies and red flag indicators related to terrorism, TF and PF, and the
implementation of TFS. BSFIs are expected to use the GPs in strengthening their AML/CTPF
controls to effectively implement TFS. Further, frequently asked questions on TFS 4 were also
released to clarify specific areas of concern in the implementation of TFS for guidance of the
BSFIs.

The positive outcomes of these activities are demonstrated in the overall improvement in the TFS
framework of BSFIs, as manifested in their TFS risk assessment, policies and procedures, sanctions
screening mechanisms, and training programs, among others. To sustain this momentum, the
BSP recognizes the need for the central bank and its supervised institutions to continue
enhancing these TFS-focused activities, along with building and maintaining critical
infrastructures, skills, and resources.

2
BSP Circular No. 1182, Series of 2023 (2023, Nov 03) (Phil.), https://www.bsp.gov.ph/Regulations/Issuances/2023/1182.pdf
3
BSP Memoranda Nos. M-2021-015 (2021, March 16) (Phil.), - Guidance Papers on Managing TF and PF Risks and
Implementation of TFS (MAAB - Guidance Papers on TF, PF and TFS (bsp.gov.ph); M-2022-0398 (2022 Sept 05) (Phil.), -
2022 Guidance Paper on Targeted Financial Sanctions (TFS) Implementation (2021 March 04) (Phil) (MAAB - 2022
Guidance Paper_dgsigned.pdf (bsp.gov.ph)
4
BSP Memorandum No. M-2022-007(2022, Feb 02) (Phil.),; Memo to All BSFIs - FAQs on TFS_03Feb22 (bsp.gov.ph)
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
50
BOX ARTICLE 2

Box Article 2

The BSP: Supporting Capital Market Development by

Facilitating Growth in the Domestic Derivatives Market

In line with the strategic objective of deepening the capital markets, the Bangko Sentral ng
Pilipinas (BSP) continues to reshape its regulatory framework to support the growth of the
derivatives market. Recent amendments provide BSP-supervised financial institutions (BSFIs)
with greater flexibility to manage their risks and offer their clients a wider set of suitable
investment opportunities.

The existing regulatory framework was introduced in 2008. Since the implementation of
enhancements beginning in June 2021, there has been a marked increase in the derivatives
activities of BSFIs. As of 30 June 2024, the total notional amount of stand-alone derivatives of
universal and commercial banks had almost doubled from 31 March 2021, growing from ₱3.43
trillion to ₱6.65 trillion. The notional amount of embedded derivatives has likewise grown nearly
2.5 times over the same timeframe, from ₱5.65 billion to ₱13.80 billion.

The BSP’s regulatory framework for derivatives

The BSP’s regulatory framework for derivatives is based on the principle that a BSFI may engage
in particular derivatives products, provided that the BSFI (a) can effectively manage the risk
arising from the product and (b) has capital commensurate with the risk exposure arising from
the product. Derivatives activities, the risks of which BSFIs are generally assumed to be capable
of handling, are labeled as generally authorized derivatives activities or “GADA.” BSFIs may
engage in these activities without prior approval from the BSP. The regulations also define
whether a BSFI can engage in GADA as a dealer, an end-user, or a broker.1

For more complex derivatives, a BSFI must be able to demonstrate that it has the necessary risk
management framework and governance arrangements to address the related risk exposures.
The BSFI’s capability to manage the derivatives activity is assessed by the BSP through a
licensing process, whereby the BSFI applies for additional derivatives authority from the BSP.
The BSFI must be duly licensed for the particular derivatives product before it can transact in
the product.

The additional derivatives authority that may be granted to a BSFI can be categorized into four
types: type 1 is an expanded dealer authority; type 2 is a limited dealer authority; type 3 is a
limited end-user authority; and type 4 is a limited broker authority. These represent the varying
capacities in which BSFIs can engage in a derivatives product. BSFIs may simultaneously hold
type 2, type 3, and type 4 authorities since these represent different capacities for specific
instruments. However, a bank holding a type 1 authority does not need to secure other
authorities, as this already encompasses derivatives transactions in all capacities. A BSFI is only
granted a type 1 authority if it can demonstrate the strength of its governance arrangements
and risk management framework for derivatives, enabling the BSFI to appropriately handle the
exposures arising from a wide range of derivatives instruments.

1
A dealer may originate and distribute certain types of derivatives, while an end-user may engage in derivatives
for the purpose of hedging its own risk. Meanwhile, a broker facilitates derivatives transactions between dealers
and market/institutional counterparties or sophisticated individual clients.
51 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

BOX ARTICLE 2

The BSP’s licensing framework for derivatives has been amended in recent years with the
issuance of Circulars No. 1119 and 1194, dated 07 June 2021 and 24 May 2024, respectively. The
amendments have broadened the list of derivatives activities classified as GADA and streamlined
the licensing process. (See Table 1: Generally authorized derivatives activities as of 13 June 2024.)

Expanding GADA

The amendments follow the principle that if a derivatives product will not require substantially
different risk management techniques from the current list of products that the BSFI is allowed
to engage in, the BSFI does not need to seek the BSP’s prior approval of the product. The
resulting list of products considered as GADA is as follows:

• deliverable foreign exchange (FX) forwards, FX swaps, currency swaps, interest rate swaps,
forward rate agreements, and interest rate and currency futures, regardless of tenor, for
universal and commercial banks (UKBs) acting as dealers;
• non-deliverable forwards (NDFs) for UKBs acting as dealers, the inclusion of which takes
into consideration the existence of prudential safeguards on NDF exposures;
• financial derivatives traded in an organized market where the UKB is recognized as a
dealing participant or member; and
• structured products (SPs) that are denominated in PHP but settled in USD for UKBs in an
end-user capacity, subject to the instruments’ booking in the regular banking unit (RBU).

The limit in investments in SPs and credit-linked notes (CLNs) of trust departments of UKBs was
also adjusted from 50.0 percent of the assets of individual accounts to 20.0 percent of the total
assets managed by the trust department. This provides more flexibility for trust clients to engage
in these instruments as they wish.

Streamlining the licensing process

Under the previous regulatory regime, BSFIs that wanted to engage in derivatives products not
covered by their existing authorities were required to apply to the BSP for an additional license.
The licensing process involves, among others, a thorough review of the BSFI’s risk management
framework and governance practices concerning the derivatives products being applied for.

Recognizing that expectations regarding governance and risk management may not vary
substantially across a subset of derivatives products, the BSP has also introduced a notification
process for derivatives. BSFIs that previously had to undergo the licensing process repeatedly
while seeking to engage in variants and structures of derivatives products already covered by an
existing license are now only required to notify the BSP before engaging in the said
variant/structure.2 (see Table 2: Activities requiring notification as of 13 June 2024)

This revised approach has resulted in a substantial decrease in cases of BSFIs having to undergo
the full derivatives licensing process. Since its introduction in 2021 and further expansion in 2024,
the notification process has been employed 11 times by different BSFIs.

Future direction for derivatives regulations

Further amendments to the derivatives regulations are yet to come. In addition to an anticipated
liberalization in FX derivatives regulations, there will also be amendments to the trust regulations
that will allow unit investment trust funds to use financial derivatives more broadly.

2
A variant refers to an instrument resulting from a change in features of the authorized product in which the
BSFI is allowed to transact. Such changes in features typically involved a change in (i) the timing and amount of
cash flows, (ii) the commencement of the contract, or (iii) the basis of payments. A structure, on the other hand,
is a combination of (i) two or more separate stand-alone derivatives contracts, or (ii) stand-alone derivatives
contract/s and a plain vanilla cash instrument.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
52
BOX ARTICLE 2

This policy direction aims to support increased transactions in the derivatives market and provide
more avenues for market participants to hedge their other financial transactions. The goal is that
all of this will lead to a deeper and more vibrant Philippine capital market.

Table 1: Generally authorized derivatives activities as of 13 June 2024

UKBs
As Dealer As End-user As Broker
1. deliverable foreign 1. Any derivatives transaction for hedging its own risks Facilitating
exchange (FX) forwards and 2. Position-taking for its own account in financial derivatives
FX swaps instruments enumerated under "Dealer" transactions
2. non-deliverable FX forwards 3. Taking long positions in naked FX options between dealers
and FX swaps 4. Investing for own account in principal-protected FX- and market
3. currency swaps denominated SPs with revenue streams linked to and/or
4. interest rate swaps and interest rate indices, interest rate instruments, listed
institutional
forward rate agreements equity shares or indices, FX rates, credit rating or
counterparties
5. interest rate and currency index, or gold with contractual maturity of up to five
futures; and (5) years and plain vanilla single-name CLNs where and/or
6. any financial derivative the reference asset is an obligation issued or sophisticated
traded in an organized guaranteed by the Republic of the Philippines (ROP) individual end-
market where the UKB is 5. Global peso notes booked under RBU users
recognized as a dealing 6. Transactions involving warrants issued under the
participant or member ROP's "Paired Warrants Program"

Digital Banks, Thrift Banks (TBs), Rural Banks (RBs) and Cooperative Banks (CBs)
As End-user

1. derivatives transactions with BSP-authorized dealers and brokers solely for hedging purposes
2. transactions involving warrants issued under the ROP's "Paired Warrants Program"

Trust Department of UKBs

As Institutional Counterparty on behalf of its trustor/principal/s, as may be authorized by such
trustor/principal/s
1. any financial derivatives instrument solely for hedging purposes
2. deliverable FX forwards, FX swaps, and currency swaps
3. interest rate swaps, forward rate agreements, and analogous financial futures
4. principal-protected FX-denominated SPs with revenue streams linked to interest rate indices, interest rate
instruments, listed equity shares or indices, FX rates, credit rating or index, or gold with contractual
maturity of up to five (5) years
5. plain vanilla single-name CLN where the reference asset is an obligation issued or guaranteed by the ROP

Table 2: Activities requiring notification as of 13 June 2024

1. any variant of a stand-alone derivative for which a (a) UKB is allowed to transact in as part of its generally
authorized derivatives activities (GADA) as dealer; (b) bank has an existing type 2 or type 3 additional
derivatives authority; (c) trust department of a UKB is allowed to transact as part of its GADA; or (d) trust
department has an existing type 3 additional derivatives authority
2. a structure or combination of (i) two or more separate stand-alone derivatives contracts or (ii) stand-alone
derivatives contract/s and a plain vanilla cash instrument where the instruments are offered or distributed
2
A variant together
refers to anandinstrument
where (all resulting from a change
of) the derivative(s) in either
is (are) features of of
part the authorized
a (a) UKB thatproduct in which
is allowed the BSFI
to transact in asispart
allowed to transact. Such changes in features typically involved a change in (i) the timing and amount of
of its GADA as dealer; (b) bank's existing type 2 or type 3 additional derivatives authority; (c) trust department's cash flows,
(ii) the commencement
GADA; or (d) trust of the contract, or
department's (iii) thetype
existing basis3 of payments.
additional A structure,
derivatives on the other hand, is a
authority
combination
3. of (i) twoproduct
a structured or morenseparate stand-alone
where the embedded derivatives contracts,
derivative/s differ(s)or (ii) stand-alone
from derivatives
that of the product contract/s
approved under a
and a plain(a) vanilla
bank's cash instrument.
existing type 2 or type 3 additional derivatives authority or (b) trust department's existing type 3
additional derivatives authority
53 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

BOX ARTICLE 3

Box Article 3

Philippine Sustainable Finance Taxonomy Guidelines:

A Tool for Sustainable Finance Growth

As an emerging economy vulnerable to the negative effects of climate change, the Philippines
prioritizes adaptation and resilience-building in designing its climate change actions and
strategies. Climate change mitigation is also prioritized, considering its environmental co-
benefits and contribution to green economic transformation.1

The nationally determined contribution and National Adaptation Plan

The Philippines, through its nationally determined contribution (NDC), commits to reducing
and avoiding greenhouse gas emissions by 75 percent. Of this total, 2.71 percent are
unconditional commitments, while 72.29 percent are conditional on international support for
the energy, transport, waste, industry, and agriculture sectors. The National Adaptation Plan
(NAP) aims to reduce the country’s vulnerability to climate change by bolstering adaptive
capacity, fostering resilience, and integrating adaptation into relevant policies and programs,
particularly in the following areas 2:

agriculture, fisheries, and food cultural heritage, population

security displacement, and migration

water resources land use and human settlements

health livelihoods and industries

ecosystems and biodiversity energy, transport, and communications

Funding the implementation

Implementing the NDC and NAP requires substantial funding. The World Bank estimates a total
of US$168 billion in financing opportunities to achieve the country’s climate goals.3 This is
equivalent to an annual investment of US$17 billion from 2020 to 2030.

The private sector plays a crucial role in narrowing this gap. Since 2017, Philippine banks have
actively issued thematic green, social, sustainability, and blue bonds to contribute to these
financing needs.

1
Climate Change Commission & Department of Environment and Natural Resources. (2023). Implementation plan for the
Republic of the Philippines’ nationally determined contribution 2020–2030.
https://www.climate.gov.ph/public/Knowledge/ThePhilippines'NDCImplementationPlan072024.pdf
2
Climate Change Commission & Department of Environment and Natural Resources. (2023). National Adaptation Plan
of the Philippines 2023–2050. https://unfccc.int/sites/default/files/resource/NAP_Philippines_2024.pdf
3
The World Bank Group. (2022). Philippines: Country climate and development report.
https://hdl.handle.net/10986/38280
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
54
BOX ARTICLE 3

The sustainable finance taxonomy

The sustainable finance taxonomy is a useful tool for directing capital from various sources—
such as banks, financial institutions, multilateral development organizations, bond issuers,
and other finance providers—toward activities that promote sustainability objectives.

A sustainable finance taxonomy is a classification system for identifying activities, assets, and
project categories that deliver on key climate, green, social, or sustainable objectives
according to established thresholds and targets.4 With its highly evolving nature, the
taxonomy is often an iterative instrument that responds to technological and scientific
knowledge changes.

By providing definitions and guidance on what constitutes “sustainable,” a sustainable

finance taxonomy serves as a useful reference for:

• identifying activities that contribute to taxonomy objectives or organizational

sustainability initiatives;
• allocating and orienting capital;
• making investment or asset selection decisions;
• creating, structuring, tracking, and labeling taxonomy-eligible products and activities;
• developing regulatory guidance on risk management and sustainability disclosures; or
• supporting national sustainability initiatives.

The Philippine Sustainable Finance Taxonomy Guidelines

To ensure an enabling environment for the promotion and growth of the sustainable finance
market in the country, the Bangko Sentral ng Pilipinas (BSP), the Securities and Exchange
Commission (SEC), and the Insurance Commission (IC), under the Financial Sector Forum,
developed the Philippine Sustainable Finance Taxonomy Guidelines (SFTG).

The SFTG operationalizes one of the recommendations from the Philippine Sustainable
Finance Roadmap, particularly the development of a sustainable finance taxonomy. It also
expands the Philippine Sustainable Finance Guiding Principles, which provide high-level
guidance for identifying economic activities that support sustainable development, with a
focus on addressing the impacts of climate change.

The highlights of the SFTG are as follows:

• adopts a principles-based approach, which employs decision trees and guide questions
to assess economic activities;
• leverages the country’s NDC and NAP for focus sectors or areas;
• aligns with the Foundation Framework of the Association of Southeast Asian Nations
(ASEAN) Taxonomy for Sustainable Finance;
• focuses initially on climate change mitigation and adaptation as environmental objectives
(EOs);
• requires economic activities to meet the ASEAN Taxonomy’s essential criteria of:
o Do No Significant Harm (DNSH),
o Remedial Measures to Transition (RMT), and
o Minimum Social Safeguards (MSS);

4
ICMA. (2021). Overview and Recommendations for Sustainable Finance Taxonomies.
https://www.icmagroup.org/assets/documents/Sustainable-finance/ICMA-Overview-and-Recommendations-for-
Sustainable-Finance-Taxonomies-May-2021-180521.pdf
55 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

BOX ARTICLE 3

• explores a simplified approach for assessing the activities of micro, small, and medium-
sized enterprises; and
• uses a “traffic light” system to classify economic activities as:

Green – activity makes a substantial contribution to climate change

mitigation or adaptation and meets the prescribed essential criteria,

Amber – activity is transitioning to address potential or actual

significant harm to another EO or just transitioning to a low-carbon or
climate-resilient strategy, or
Red – activity does not align with SFTG parameters, particularly the DNSH
and MSS criteria, but may still be eligible for unlabeled financing.

The SFTG will be regularly reviewed and updated to reflect the latest developments in
sustainable finance and incorporate new government policies and sustainability targets.
These include additional EOs, such as biodiversity and circular economy, and the potential
adoption of technical screening criteria.

Issuance of Circular No. 1187

The BSP issued Circular No. 1187, or the “Philippine

Sustainable Finance Taxonomy Guidelines,” on 21
February 2024. The circular provides an observation
period that allows banks to deepen their
understanding of and familiarity with the SFTG prior
to its effectivity. Moving forward, banks may use the
SFTG in their credit-granting activities, investment
decisions, and design of sustainable finance
products and services, among others.

To aid in the implementation of the SFTG, the BSP

will develop additional use cases for climate change
adaptation financing and guidance on the
integration of the taxonomy into the banks' credit
risk cycle and related reporting tools. The
information gathered will also provide valuable
inputs for expanding the SFTG’s usability in
supervising climate and environmental risks.
 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024
56
BOX ARTICLE 4

Box Article 4

The Business Model of Islamic Banking Units in the Philippines

The Bangko Sentral ng Pilipinas recognizes the need for a critical mass of Islamic banking players
capable of providing a wide range of competitive and innovative Islamic banking products and
services to viably operate alongside conventional banking counterparts. To achieve this, the
prudential approach calls for flexibility in licensing new Islamic banking players by allowing the
establishment of both full-fledged Islamic banks (IBs) and Islamic banking units (IBUs) of any
type of conventional bank.

The flexibility and progressiveness of BSP's approach are evident in its allowing a conventional
bank to engage in Islamic banking operations through a division, department, office, or branch
called the IBU or IB window. It should be noted that while an IBU is essentially a part of a
conventional bank, it is clothed with all the powers and authorities of an IB under Section 101 of
the Manual of Regulations for Banks (MORB). Under the existing regulation, IBU/IB is authorized
to directly enter into Islamic contracts involving exposures to different industries, as long as these
industries are non-haram. This includes contracts consisting of sales transactions, partnerships,
agency, and other financing arrangements with profit-sharing features. This authority is in
addition to the general powers of a UB that are consistent with the principles of Shari’ah. 1 With
prior Monetary Board (MB) approval, IBs and IBUs can issue investment participation certificates,
sukuk, and other Shari’ah-compliant funding instruments to be used in Islamic banking
operations or capital needs.

To ensure a level playing field for IBs, IBUs, and conventional banks, the BSP adopted a single
regulatory approach wherein IBs and IBUs are covered by the same regulations as conventional
banks, as applicable, with due consideration of the principles of Shari’ah. This follows a flexible
and progressive approach to supervision.

1
Powers of IB and IBUs are provided under Section 6 of RA No. 11439.
57 REPORT ON THE PHILIPPINE FINANCIAL SYSTEM | FIRST SEMESTER 2024

BOX ARTICLE 4

In 2024, two conventional banks2 formally launched their Islamic banking operations by
establishing an IBU with different business models and approaches.

The first IBU licensed by the MB adopted an IBU business model with a dedicated Islamic
banking branch and an incentive to increase its Islamic banking branches as needed. The
dedicated Islamic banking branch was strategically located in Cotabato City as part of the
bank’s expanded financial inclusion agenda and its mission to eradicate poverty in the country.

The IBU is gradually transitioning the conventional bank’s existing microfinance portfolio into a
wide array of Islamic financing products after clearance from its own Shari'ah Advisory Council.
This approach aims to expand the onboarding of people from Muslim-dominated regions into
the Islamic banking system. The IBU is seamlessly launching basic Islamic products and
services, including wadi’ah deposit accounts, term investment deposits, micro-agricultural
financing, and micro-enterprise financing, among others.

Meanwhile, the most recently licensed IBU adopts an approach aimed at ensuring increased
touchpoints with clients by utilizing economies of scale and deploying Islamic banking-
designated desks across its existing conventional branches and branch-lite units. The IBU
leverages the expertise and infrastructure of its parent foreign Islamic bank to ensure a quick
but prudential rollout of Islamic banking products and services that have passed the Shari’ah
compliance review by the parent bank. The roadmap of the IBU was strategically set to start by
building its Islamic deposits before offering to the market the Islamic financing products and
services offered by the parent bank, with relevant customization to cater to the domestic
market. The unique approach of integrating Islamic banking into its conventional operations is
expected to expand Islamic banking operations with cost-saving measures to cater to a variety
of customer preferences and needs. This promotes financial inclusivity and sustainable
economic development in communities it serves. The IBU targets its Islamic banking operations
in selected cities and municipalities across the country.

It is anticipated that incoming Islamic banking players will explore other IBU business models
appropriate to respond to market demand, given the untapped potential of Islamic banking
and finance in promoting inclusive growth. At the minimum, the IBUs enhance prospects for
conventional banks to venture and provide Shari’ah-compliant products and services in a
flexible and prudential manner, which can onboard more Filipinos into the formal financial
system of the country.

2
Card Bank, Inc. (A Microfinance - Oriented Rural Bank) [CRDMF] and Maybank Philippines, Incorporated (MBPI).
 APPENDICES
58

The Philippine Banking System: Financial Highlights and

1 Growth Rates

The Philippine Banking System: Selected Performance

2 Indicators

Philippine Banking System: Number of Offices and

3 Regional Profile

Philippine Banking System: Number of BSP-supervised

4 Financial Institutions (BSFIs) with Authority to Provide
EPFS

Philippine Financial System: Number of Offices of

5 Financial Institutions (FIs) under BSP
Supervision/Regulation

Philippine Banking System: Compliance of Banks with the

6 Mandatory Agriculture, Fisheries, and Rural Development
(AFRD) Financing

Foreign Currency Deposit Unit (FCDU) Operations:

7 Financial Highlights and Growth Rates

8 FCDU Operations: Selected Performance Indicators

Trust Operations (Philippine Banks and Non-bank

9 Financial Institutions): Financial Highlights and Growth
Rates

Trust Operations (Philippine Banks and Non-bank

10 Financial Institutions): Selected Performance Indicators
 Appendix 1
The Philippine Banking System: Financial Highlights and Growth Rates
as of end-periods indicated; in billion PH pesos; growth rate in percent

Financial Highlights y-o-y Growth Rates

end-December end-June
2021 2022 2023 2023 2024 2023 2024

On-Balance Sheet
Total Assets 1 20,828.1 23,047.7 25,165.9 23,295.4 26,194.5 9.1% 12.4%
Cash and due from banks 3,571.5 3,271.7 2,918.9 2,870.9 2,748.3 0.6% (4.3%)
Investments, gross 5,497.9 6,470.0 7,082.4 6,878.1 7,610.8 9.4% 10.7%
Financial Assets, gross (net of amortization) 5,221.0 6,207.5 6,786.4 6,602.7 7,305.5 9.2% 10.6%
Securities measured at fair value through 255.3 207.81 272.9 372.8 539.8
8.3% 44.8%
profit or loss
Securities measured at fair value through 2,337.5 2,194.78 2,495.8 2,265.9 2,761.5
(2.8%) 21.9%
other comprehensive income
Securities measured at amortized cost 2,628.2 3,804.91 4,017.7 3,964.0 4,004.2 17.5% 1.0%
Accumulated market gains/(losses) (4.5) (122.8) (49.1) (89.5) (68.2) (7.9%) (23.8%)
Allowance for credit losses 20.7 17.7 14.7 17.8 14.5 (14.1%) (18.5%)
Financial Assets, net 5,195.9 6,066.9 6,722.6 6,495.5 7,222.8 9.5% 11.2%
Equity investments in subsidiaries, associates and 276.9 262.5 296.0 275.4 305.3
14.1% 10.8%
joint ventures, net
Investments, net 5,472.8 6,329.4 7,018.6 6,770.9 7,528.1 9.7% 11.2%
Loans, gross 11,391.1 12,625.1 13,859.9 12,743.4 14,319.5 8.8% 12.4%
Allowance for credit losses 396.8 426.7 456.9 445.1 479.5 8.8% 7.7%
Loans, net 10,994.3 12,198.4 13,403.0 12,298.3 13,840.0 8.8% 12.5%
Real and other properties acquired, net 95.9 104.3 106.5 102.3 109.4 2.6% 6.9%
Other assets, net 693.6 1,143.9 1,718.8 1,252.9 1,968.7 36.7% 57.1%
Total Liabilities 18,254.2 20,341.3 22,097.0 20,434.1 23,031.0 8.9% 12.7%
Financial liabilities held for trading 43.7 72.9 57.0 65.0 80.2 (33.4%) 23.4%
Deposits liabilities 16,241.1 17,770.4 19,032.7 17,824.4 19,517.5 8.1% 9.5%
Peso liabilities 13,857.9 15,065.4 15,974.8 15,079.8 16,218.5 8.5% 7.6%
Foreign currency 2,383.2 2,704.9 3,057.8 2,744.6 3,299.0 5.7% 20.2%
Due to banks/others 181.9 114.4 164.3 145.9 172.1 51.9% 18.0%
Bills payable 496.9 666.0 780.2 669.4 937.6 39.0% 40.1%
Bonds payable 613.8 578.2 496.3 487.5 544.9 (24.3%) 11.8%
Unsecured subordinated debt 22.6 19.3 8.1 19.3 8.1 (14.5%) (57.9%)
Redeemable preferred shares 0.2 0.3 0.3 0.3 0.3 (0.7%) 3.9%
Derivatives with negative fair value held for hedging 0.3 4.4 8.1 4.7 3.6 255,968.5% (24.3%)
Other liabilities 653.5 1,115.6 1,549.9 1,217.6 1,766.6 30.1% 45.1%
2
Total Capital Accounts 2,574.0 2,706.4 3,068.9 2,861.2 3,163.5 11.0% 10.6%

Total Off-Balance Sheet Accounts 12,171.3 13,344.5 15,461.5 14,901.4 18,230.4 0.0% 22.3%

Income Statement
Total operating income 869.4 1,014.5 1,137.8 552.4 610.3 17.2% 10.5%
Net interest income 661.8 754.7 915.6 437.8 505.8 23.6% 15.5%
Non-interest income 207.6 259.9 222.3 114.6 104.5 (2.1%) (8.8%)
Non-interest expenses 512.4 562.4 645.1 309.7 341.2 16.0% 10.2%
(Losses)/recoveries on financial assets (97.7) (88.6) (84.2) (35.1) (44.9) (6.7%) 27.9%
Net profit before share in the profit/(loss) of unconsolidated 259.3 363.5 408.5 207.6 224.2
subsidiaries, associates and joint ventures 24.5% 8.0%

Share in the profit/(loss) of unconsolidated subsidiaries,

20.7 23.8 27.3 14.1 14.3 25.0% 1.3%
associates and joint ventures
Total profit/(loss) before tax and before minority interest 280.1 387.4 435.7 221.7 238.5 24.5% 7.6%
Income tax expense 55.3 77.3 79.2 38.9 48.2 11.5% 23.9%
Total profit/(loss) after tax and before minority interest 224.8 310.1 356.5 182.8 190.3 27.7% 4.1%
Minority interest in profit/(loss) of subsidiaries - - - - -
Net profit/(loss) after tax and minority interest 224.8 310.1 356.5 182.8 190.3 27.7% 4.1%

Source: Bangko Sentral ng Pilipinas

1
Net of due to/from head office of foreign bank branches
2
Inclusive of the portion of the net due to head office, which qualified as capital
Note: Figures may not add up due to rounding-off
 Appendix 2
The Philippine Banking System: Selected Performance Indicators
as of end-periods indicated; ratio in percent

end-December end-June
2021 2022 2023 2023 2024
Asset Quality
Restructured loans to total loan portfolio (TLP) 3.1% 2.6% 2.2% 2.5% 2.1%
Allowance for credit losses (ACL) to TLP 3.5% 3.4% 3.3% 3.5% 3.3%
Non-performing loan (NPL) ratio 4.0% 3.2% 3.2% 3.4% 3.5%
NPL ratio (net of interbank loans receivables) 4.1% 3.2% 3.3% 3.5% 3.6%
NPL coverage ratio 87.7% 107.0% 101.7% 101.7% 95.4%
Non-performing asset (NPA) ratio 2.7% 2.2% 2.3% 2.4% 2.4%
NPA coverage ratio 75.3% 87.9% 85.1% 85.2% 81.1%
Profitability
Earning asset yield 1 4.1% 4.4% 5.8% 5.3% 6.2%
Funding cost 2 0.7% 0.9% 1.9% 1.5% 2.1%
Interest spread 3 3.4% 3.5% 3.9% 3.8% 4.0%
Net interest margin (NIM) 4 3.5% 3.6% 4.1% 4.0% 4.3%
5
Non-interest income to total operating income 23.9% 25.6% 19.5% 23.4% 17.7%
Cost-to-income ratio 6 58.7% 55.2% 56.7% 55.1% 56.6%
Return on assets (RoA) 7 1.1% 1.4% 1.5% 1.6% 1.5%
Return on equity (RoE) 7 9.0% 11.7% 12.3% 12.9% 12.1%

Capital Adequacy
Total capital accounts8 to total assets 12.4% 11.7% 12.2% 12.3% 12.1%
Capital adequacy ratio (CAR, solo) 9, 10 16.5% 15.4% 16.4% 16.3% 15.9%
Common equity tier 1 (CET1) ratio 15.3% 14.3% 15.3% 15.2% 14.8%
Capital conservation buffer 9.3% 8.3% 9.3% 9.2% 8.8%
Tier 1 ratio 15.5% 14.5% 15.5% 15.4% 15.0%
CAR (consolidated) 9, 10 17.1% 16.1% 16.9% 16.9% 16.4%
CET1 ratio 15.9% 15.0% 15.8% 15.8% 15.3%
Capital conservation buffer 9.9% 9.0% 9.8% 9.8% 9.3%
Tier 1 ratio 16.1% 15.2% 16.0% 16.0% 15.5%
Liquidity
Cash and due from banks to deposits 22.0% 18.4% 15.3% 16.0% 14.1%
Liquid assets to deposits 54.0% 52.6% 50.7% 52.5% 51.1%
Loans, gross to deposits 70.1% 71.0% 72.8% 71.6% 73.4%
Source: Bangko Sentral ng Pilipinas
1
Earning asset yield refers to the ratio of interest income to average earning assets.
2
Funding cost ratio refers to the ratio of interest expenses to average interest-bearing liabilities.
3
Interest spread refers to the difference between earning asset yield and funding cost.
4
NIM refers to the ratio of net interest income to average earning assets.
5
Non-interest income includes dividends income.
6
Cost-to-income ratio refers to the ratio of non-interest expenses to total operating income.
7
RoA and RoE refer to the ratios of net profit to average assets and capital, respectively.
8
Total capital accounts includes redeemable preferred shares.
9
CAR refers to the ratio of qualifying capital to total risk-weighted assets.
10
CAR data of universal and commercial banks, including their subsidiary banks and quasi-banks.
This excludes CAR of stand-alone thrift, rural and cooperative banks.
 Appendix 3
Philippine Banking System: Number of Offices and Regional Profile
as of end-periods indicated

end-June 2024

Universal Commercial Thrift Rural Cooperative Digital

Total
Banks Banks Banks Banks Banks Banks
Total 13,367 6,980 190 2,610 3,397 184 6

Head Offices 478 22 22 42 364 22 6

Branches/Other Offices 12,889 6,958 168 2,568 3,033 162 -
Regular Branch 9,911 6,678 150 1,636 1,315 132 -
Branch-Lite Unit 2,788 245 18 917 1,578 30 -
Microfinance-Oriented Branch 154 - - 15 139 - -
Representative Office 17 17 - - - - -
Remittance Desk Office 14 14 - - - - -
Marketing Office 2 2 - - - - -
Limited Purpose Branch 1 1 - - - - -
Sub-Branch 1 1 - - - - -
Sub-Branch
Islamic Branch 1 0 - - 1 - -

end-June
end-June 2024
2023
Branches/
Head
Total Total Other
Offices
Offices

Total 13,335 13,367 478 12,889

Nationwide 13,283 13,316 478 12,838

National Capital Region (NCR) 3,808 3,756 79 3,677

Luzon 5,600 5,612 258 5,354

Region I - Ilocos 682 672 28 644
Region II - Cagayan Valley 493 487 26 461
Region III - Central Luzon 1,380 1,392 68 1,324
Region IV-A - CALABARZON 1,919 1,916 84 1,832
Region IV-B - MIMAROPA 322 327 19 308
Region V - Bicol 595 603 18 585
Cordillera Administrative Region 209 215 15 200
Visayas - 2,019 2,057 80 1,977
Region VI - Western Visayas 788 811 39 772
Region VII - Central Visayas 922 928 29 899
Region VIII - Eastern Visayas 309 318 12 306
Mindanao 1,856 1,891 61 1,830
Region IX - Zamboanga Peninsula 280 283 14 269
Region X - Northern Mindanao 459 468 21 447
Region XI - Davao Region 516 524 12 512
Region XII - SOCCSKSARGEN 1/ 305 313 9 304
CARAGA 254 258 5 253
BARMM 42 45 0 45
Overseas 52 51 - 51
Asia-Pacific 20 19 - 19
Europe 5 5 - 5
North America 5 5 - 5
Middle East 22 22 - 22

Source: Bangko Sentral ng Pilipinas

1
Composed of the provinces of North Cotabato, South Cotabato, Sultan Kudarat and Sarangani, and the cities of General Santos, Koronadal,
Tacurong and Kidapawan.
 Appendix 4
Philippine Banking System: Number of BSP-supervised Financial Institutions (BSFIs) with Authority to
Provide EPFS
as of end-June 2024

No. of BSFIs with

Authority to
Provide Electronic
Payment and E-Money Other Internet Internet
Financial Services Credit (E- Payment Banking - Banking - Mobile
(EPFS)
ATM Card Card EMIs Wallet) Cards Retail Corporate Banking

Universal and commercial banks 40 24 16 17 4 5 25 36 23

Thrift banks 30 27 1 7 - - 14 8 18
Rural and cooperative banks 62 31 - 5 4 - 7 1 19
Digital banks 6 3 - - - - 1 1 6
Banks 138 85 17 29 8 5 47 46 66
EMIs 43 - - 43 32 - 3 1 32
Others 15 1 1 1 - - 7 - 10
Total 196 86 18 73 40 5 57 47 108

Cash Point of
Telephone ATM Cash Accept Payment With VASP
Recycling Sale InstaPay
banking Facility Machine Portal Services
Machine Facility

Universal and commercial banks 10 25 10 1 17 8 1 22

Thrift banks 4 27 2 1 6 - - 20
Rural and cooperative banks - 30 - - 8 - - 18
Digital banks - 3 1 - 1 - - 6
Banks 14 85 13 2 32 8 1 66
EMIs - - 1 - 2 1 5 21
Others - 1 - - - 1 -
Total 14 86 14 2 34 9 7 87

e-KYC
Online/
Instapay Agency Online Type C
PESONet QR Ph Digital Loan Others
Multi-Proxy Banking Onboardin EPFS
Application
g

Universal and commercial banks 40 14 12 13 15 - 10 4

Thrift banks 19 10 1 5 4 4 2 -
Rural and cooperative banks 40 9 3 8 4 23 7 -
Digital banks 6 3 4 4 6 - 4 1
Banks 105 36 20 30 29 27 23 5
EMIs 10 15 9 3 26 - - 1
Others - - - - 4 - 1 -
Total 115 51 29 33 59 27 24 6

Source: Bangko Sentral ng Pilipinas

 Appendix 5
Philippine Financial System: Number of Offices of Financial Institutions (FIs) under BSP
Supervision/Regulation
as of end-periods indicated

end-June 2023 end-June 2024

Type of FI Head Other Head Other
Total Total
Offices Offices Offices Offices

BSP Supervised/Regulated FIs 1 37,840 2,555 35,285 37,853 2,728 35,125

2
I. Banks 13,335 490 12,845 13,367 478 12,889

A. Universal and Commercial Banks 7,205 45 7,160 7,170 44 7,126

Universal Banks 6,856 22 6,834 6,980 22 6,958
Domestic
Private
Banks
domestic banks 6,003 13 5,990 6,125 13 6,112
Government banks 842 3 839 844 3 841
Branches
Foreign
of Foreign
bank branches
Banks 11 6 5 11 6 5

Commercial Banks 349 23 326 190 22 168

Domestic
Private domestic
Banks banks 232 3 229 69 2 67
Foreign bank subsidiaries 98 2 96 102 2 100
Branches
Foreign
of Foreign
bank branches
Banks 19 18 1 19 18 1

B. Thrift Banks 2,609 43 2,566 2,610 42 2,568

Financial Institution-Linked Banks 1,168 11 1,157 1,163 10 1,153
Domestic bank-controlled 1,137 8 1,129 1,136 8 1,128
Foreign bank-controlled 31 3 28 27 2 25
Domestic NBFI-controlled - - - - - -
Foreign NBFI-controlled - - - - - -

Non-Linked 1,441 32 1,409 1,447 32 1,415

C. Rural and Cooperative Banks 3,515 396 3,119 3,581 386 3,195
Rural banks 2,440 369 2,071 2,494 359 2,135
Microfinance-oriented rural banks 900 5 895 903 5 898
Cooperative banks 175 22 153 184 22 162

D. Digital Banks 6 6 - 6 6 -

II. Non-bank Financial Institutions (NBFIs) 24,504 2,064 22,440 24,485 2,249 22,236

A. With Quasi-Banking Function 19 5 14 19 5 14

Investment houses 1 1 1 1 -
Financing companies 17 3 14 17 3 14
Other non-bank with QBF function 1 1 - 1 1 -

B. Without Quasi-Banking Function 24,485 2,059 22,426 24,466 2,244 22,222

AAB - Forex corporation 1 1 - 1 1 -
Credit card companies 4 4 - 5 5 -
Credit granting entities - - - - - -
Electronic money issuers - others 116 43 73 118 43 75
Financing companies 149 21 128 140 20 120
Government non-bank financial institutions 2 2 - 2 2 -
Investment companies 1 1 - 1 1 -
Investment houses 12 11 1 12 11 1
Lending investors 1 1 - 1 1 -
Non-stock savings and loan associations 193 57 136 193 55 138
Operators of Payment System 198 198
Pawnshops 3 16,038 1,165 14,873 16,219 1,169 15,050
Money service businesses 7,950 735 7,215 7,556 718 6,838
Remittance agent (subsidiary of a bank) - - - 1 1 -
Securities dealers/brokers 12 12 - 12 12 -
Trust corporations 6 6 - 7 7 -

III. Offshore Banking Unit (OBU) 1 1 - 1 1 -

Source: Bangko Sentral ng Pilipinas

1
Excludes foreign banks' representative offices (ROs) in the Philippines; includes money service businesses (MSBs)
2
Includes ROs abroad of domestic banks
3
Excludes Pawnshops multi-functioning as MSBs
 Appendix 6
Philippine Banking System: Compliance of Banks with the Mandatory Agriculture, Fisheries, and Rural
Development (AFRD) Financing
as of end-periods indicated; in billion PH pesos; ratio in percent

Universal
and Rural and
commercial Thrift cooperative Digital
Total banks banks banks banks

end-June 2024
Total Loanable Fund (TLF) 912.7 727.6 83.5 81.4 20.2
25% of TLF 228.2 181.9 20.9 20.4 5.1
Total compliance 1 1,755.7 1,473.7 128.7 153.4 -
Percentage of TLF used for compliance 192.4% 202.5% 154.1% 188.4% 0.0%

Source: Bangko Sentral ng Pilipinas

1
Newly-established banks are exempted from the mandatory AFRD financing for a period of five years from their
commencement of operations pursuant to Section 6 of R.A. No. 11901
 Appendix 7
Foreign Currency Deposit Unit (FCDU) Operations: Financial Highlights and Growth Rates
as of end-periods indicated; in million US dollars; growth rate in percent
Financial Highlights

end-December end-June
2021 2022 2023 2023 2024

Balance Sheet
1
Total Assets 57,796.1 61,920.0 67,836.2 61,890.4 70,558.3
Cash and due from banks 6,547.2 5,577.6 5,405.3 4,420.3 4,729.5
Financial assets, gross 28,302.2 28,557.3 28,237.8 28,160.4 28,974.5
Allowance for credit losses 43.7 47.7 52.6 48.9 45.8
Accumulated market gains/losses 62.7 (903.6) (475.1) (628.9) (511.4)
Financial assets, net 28,321.2 27,606.0 27,710.0 27,482.7 28,417.3
Interbank loans receivable (IBL), net 6,132.3 4,464.9 3,900.5 3,577.4 3,220.2
Loans, gross (exclusive of IBL) 16,456.5 17,243.1 16,472.4 17,698.2 17,275.6
2
Allowance for probable losses 657.3 357.7 367.5 384.9 371.4
Loans, net (exclusive of IBL) 15,799.2 16,885.5 16,104.9 17,313.4 16,904.2
ROPA, net 26.2 21.9 17.7 9.6 15.2
Other assets, net 970.0 7,364.2 14,697.8 9,087.0 17,271.9

Total Liabilities 56,792.4 61,533.2 67,124.6 61,563.7 70,206.5

Financial liabilities held for trading 87.9 111.1 115.3 133.5 166.1
Deposit liabilities 46,093.8 47,852.7 54,416.1 48,987.3 55,155.3
Due to other banks 698.9 741.5 538.4 596.0 546.0
Bills payable 3,210.8 5,654.3 7,437.3 6,591.7 7,890.3
Bonds payable, net 4,888.5 4,972.2 2,761.5 3,413.2 4,937.2
Other liabilities 517.1 385.2 493.5 498.1 555.1
Due to HO/Br./Agencies/FCDU/RBU, net
3 1,295.4 1,816.3 1,362.5 1,343.9 956.4

Total Capital Accounts 1,003.7 386.8 711.6 326.7 351.8

Income Statement
Total operating income 1,277.4 1,141.5 1,188.0 636.0 481.1
Net interest income
5 825.5 981.9 1,037.3 569.0 364.6
Non-interest income 451.9 159.6 150.6 67.1 116.5
Non-interest expenses 185.4 165.4 173.5 89.9 86.3
Losses/recoveries on financial assets (240.2) 139.7 (28.4) (19.3) (9.2)
Net Profit or Loss 807.9 1,074.9 931.4 502.6 356.9

Year-on-Year Growth

Total Assets (1.2%) 7.1% 9.6% 6.2% 14.0%

Cash and due from banks (4.6%) (14.8%) (3.1%) (21.8%) 7.0%
Financial assets, gross (1.1%) 0.9% (1.1%) (0.1%) 2.9%
Loans, gross (exclusive of IBL) (6.7%) 4.8% (4.5%) 7.5% (2.4%)

Total Liabilities (0.1%) 8.3% 9.1% 6.1% 14.0%

Financial liabilities held for trading (39.0%) 26.4% 3.8% 57.1% 24.4%
Deposit liabilities 2.3% 3.8% 13.7% 5.1% 12.6%
Due to other banks (2.0%) 6.1% (27.4%) (28.3%) (8.4%)
Bills payable (19.8%) 76.1% 31.5% 73.9% 19.7%
Other liabilities 37.2% (25.5%) 28.1% 12.0% 11.5%

Total Capital Accounts (39.3%) (61.5%) 84.0% 35.5% 7.7%

Total operating income (16.5%) (10.6%) 4.1% 17.2% (24.4%)

Net interest income 5 (7.3%) 18.9% 5.7% 31.8% (35.9%)
Non-interest income (29.3%) (64.7%) (5.6%) (39.6%) 73.7%
Non-interest expenses (1.8%) (10.8%) 5.0% (1.7%) (4.1%)
Net Profit/(Loss) (31.4%) 33.0% (13.3%) 0.9% (29.0%)

Source: Bangko Sentral ng Pilipinas

1
Adjusted to net off the account "Due from Head Office" with "Due to Head Office" of branches of foreign banks
2
Inclusive of general loan loss provision
3
Net of due from head office/branches/agencies (Philippine branches of foreign banks) and due from FCDU/RBU
4
Net of interest expenses and provision for losses on accrued interest income from financial assets
 Appendix 8
FCDU Operations: Selected Performance Indicators
as of end-periods indicated; ratios in percent

end-December end-June
2021 2022 2023 2023 2024

Liquidity
Liquid assets to deposits 1 (excl. of ROPs) 55.2% 47.2% 40.4% 43.7% 40.8%
Liquid assets to deposits 1 (incl. of ROPs) 75.6% 69.3% 60.9% 65.1% 60.1%
Loans, gross to deposits 49.0% 45.4% 37.4% 43.4% 37.2%
Asset Quality
Non-performing loans (NPL) ratio 2 3.6% 1.1% 0.9% 1.2% 1.3%
NPL coverage ratio 2 109.9% 196.4% 246.2% 181.1% 171.4%
Non-performing assets (NPA) to gross assets 2 1.1% 0.3% 0.3% 0.4% 0.3%
NPA coverage ratio 2 103.7% 165.9% 202.0% 157.2% 151.7%
Profitability
Cost-to-income ratio 14.5% 14.5% 14.6% 13.3% 16.4%
Return on assets 1.4% 1.8% 1.4% 1.8% 1.2%
Net interest margin 1.4% 1.7% 1.9% 2.1% 1.6%

Source: Bangko Sentral ng Pilipinas

1
Exclusive of IBLs
2
Liquid assets refers to cash and due from banks plus financial assets, net of amortization
(net of financial assets in equity securities and allowance for credit losses)
 Appendix 9
Trust Operations (Philippine Banks and Non-bank Financial Institutions): Financial Highlights and Growth Rates
as of end-periods indicated; in billion PH pesos; growth rate in percent
Financial Highlights
end-December end-June
2021 2022 2023 2023 2024

Total Assets 5,058.2 5,345.9 6,215.1 5,854.1 6,609.4

Cash and due from banks 0.3 0.4 0.4 0.5 0.4
Deposits in banks, gross 1,086.2 1,181.0 1,389.3 1,332.6 1,422.6
Allowance for credit losses - - 0.7 0.6 0.3
Deposits in banks, net 1,086.2 1,181.0 1,388.6 1,332.0 1,422.3
Financial assets, gross (net of amortization) 3,461.2 3,559.7 4,150.2 3,863.5 4,360.0
Accumulated market gains/losses 31.7 (28.1) (3.7) (5.1) (5.5)
Allowance for credit losses 0.2 0.5 0.3 0.2 0.3
Financial assets, net 3,492.6 3,531.2 4,146.1 3,858.1 4,354.2
Loans, gross 118.6 134.2 137.4 137.4 140.5
Allowance for probable losses 7.5 6.4 9.0 7.7 5.7
Loans, net 111.1 127.8 128.4 129.7 134.9
Equity investments, gross 5.5 5.4 0.0 0.0 2.9
Allowance for probable losses 2.5 2.5 - - -
Equity investments, net 3.0 2.9 0.0 0.0 2.9
Real and other properties acquired, net 0.1 0.2 0.3 0.3 0.3
Other assets 365.0 502.4 551.3 533.6 694.4

Total Accountabilities 5,058.2 5,345.9 6,215.1 5,854.1 6,609.4

Wealth/asset/fund management accounts (Trust) 2,395.2 2,043.4 2,040.2 2,009.8 2,137.9
Unit investment trust fund (UITF) 1,305.3 940.7 841.2 819.2 865.9
Employee benefit 460.1 465.9 523.1 506.7 540.0
Pre-need 127.9 125.3 133.9 129.9 138.8
Other institutional trust accounts 45.1 49.0 54.2 51.7 91.3
Personal trust 420.7 399.9 398.5 425.2 400.9
Personal retirement fund 0.1 0.1 0.1 0.1 0.1
Other individual trust accounts 36.0 62.5 89.3 77.0 100.9
Wealth/asset/fund management accounts (Agency) 2,207.0 2,708.6 3,465.9 3,177.8 3,612.6
Employee benefit 56.3 59.0 61.9 58.4 64.6
Pre-need 0.7 0.7 0.6 0.6 0.6
Other institutional agency accounts 1,189.5 1,405.5 1,797.8 1,616.5 1,806.0
Personal retirement fund 0.0 0.0 0.0 0.0 0.0
Other individual agency accounts 960.5 1,243.3 1,605.7 1,502.3 1,741.4
Other fiduciary services 455.3 593.2 652.3 665.2 798.5
UITF 13.6 14.5 15.3 15.5 17.0
Court trusts 2.4 1.2 0.1 0.1 0.1
Corporate fiduciary trust 47.7 44.1 63.3 58.4 65.1
Escrow 47.8 45.2 65.1 49.9 75.0
Custodianship 303.0 438.5 449.6 492.2 581.1
Safekeeping 0.0 0.0 0.2 0.2 0.2
Others 40.8 49.6 58.6 48.9 59.9
Advisory/consultancy 0.0 0.0 0.0 0.0 0.0
Special purpose trust 0.6 0.8 56.6 1.3 60.4

Year-on-Year Growth

Total Assets 9.2% 5.7% 16.3% 14.9% 12.9%

Cash and due from banks (2.9%) 13.9% 8.1% 38.4% (9.5%)
Deposits in banks, gross 2.6% 8.7% 17.6% 39.4% 6.8%
Financial assets, gross (net of amortization) 12.0% 2.8% 16.6% 8.8% 12.9%
Loans, gross 18.6% 13.1% 2.3% 9.9% 2.3%
Equity investments, gross (31.8%) (2.4%) (100.0%) (100.0%) 595,582.7%
ROPA, net (17.0%) 245.5% 25.5% 184.8% 13.0%
Other assets 9.1% 37.6% 9.7% 11.6% 30.1%

Total Accountabilities 9.2% 5.7% 16.3% 14.9% 12.9%

Wealth/asset/fund management accounts (Trust) 6.8% (14.7%) (0.2%) (11.0%) 6.4%
UITF 10.6% (27.9%) (10.6%) (32.5%) 5.7%
Employee benefit 4.4% 1.2% 12.3% 13.1% 6.6%
Pre-need 2.4% (2.1%) 6.9% 6.3% 6.8%
Other institutional trust accounts 13.8% 8.8% 10.6% 17.3% 76.7%
Personal trust (2.7%) (4.9%) (0.3%) 13.2% (5.7%)
Personal retirement fund 0.1% (30.9%) (22.7%) (5.9%) (11.6%)
Other individual trust accounts 41.8% 73.6% 42.8% 44.0% 31.1%
Wealth/asset/fund management accounts (Agency) 12.6% 22.7% 28.0% 39.7% 13.7%
Employee benefit (2.9%) 4.9% 4.9% 3.7% 10.5%
Pre-need (2.1%) (3.7%) (19.9%) (4.0%) (6.3%)
Other institutional agency accounts 17.4% 18.2% 27.9% 29.5% 11.7%
Personal retirement fund (0.1%) (8.1%) 147.4% (11.4%) 162.1%
Other individual agency accounts 8.2% 29.4% 29.1% 54.9% 15.9%
Other fiduciary services 6.0% 30.3% 10.0% 18.5% 20.0%
Advisory/consultancy 2.6% 0.0% (5.1%) (5.1%) 0.0%
Special purpose trust (38.5%) 26.3% 6,884.7% 114.9% 4,441.9%

Source: Bangko Sentral ng Pilipinas

Note: Figures may not add up due to rounding-off
0.0 denotes below ₱0.05 billion
 Appendix 10
Trust Operations (Philippine Banks and Non-bank Financial Institutions): Selected Performance Indicators
as of end-periods indicated; ratio in percent

end-December end-June
2021 2022 2023 2023 2024

Asset Quality
Non-performing loans (NPL) ratio 0.5% 1.7% 2.0% 1.9% 1.9%
NPL coverage ratio 1244.2% 285.4% 327.3% 294.4% 211.3%
Non-performing assets (NPA) to gross assets 0.01% 0.05% 0.05% 0.05% 0.05%
NPA coverage ratio 1068.5% 255.7% 292.1% 265.5% 189.0%
Liquidity
Cash and due from banks to total accountabilities 0.01% 0.01% 0.01% 0.01% 0.01%
Liquid assets to total accountabilities 68.4% 66.6% 66.8% 66.0% 66.0%
Loans, gross to total accountabilities 2.3% 2.5% 2.2% 2.3% 2.1%

Source: Bangko Sentral ng Pilipinas

Note: "0.0%" denotes below 0.05%