THE SLOWER income growth posted by most listed Philippine banks in the second quarter is likely to continue for the remainder of the year as easing interest rates continue to affect their margins.
“The slowdown in net income growth was expected, given the environment of declining interest rates… Overall, we expect this trend to continue, with overall profitability declining except for some outliers,” AP Securities, Inc. Research Head Alfred Benjamin R. Garcia said.
“We’re already seeing asset quality taking a hit from the aggressive expansion into consumer lending, and we expect some provisioning for bad loans impacting earnings down the line.”
The Philippine banking industry’s combined net income grew by 4.14% year on year to P198.14 billion in the six months through June from P190.26 billion a year ago, according to data from the Bangko Sentral ng Pilipinas (BSP).
Meanwhile, the sector’s gross nonperforming loan (NPL) ratio dropped to a three-month low of 3.34% in June from 3.38% in May and 3.51% in the same month last year.
The BSP has cut benchmark borrowing costs by a cumulative 150 basis points (bps) since it began its easing cycle in August 2024, with the policy rate now at 5%.
BSP Governor Eli M. Remolona, Jr. said last week that the key rate is now at the “sweet spot” in terms of inflation and output.
He added that they could consider further policy loosening if the economy weakens “considerably,” with one more cut still possible this year that could mark the end of its current easing cycle.
Mr. Garcia said Philippine National Bank (PNB) was a standout in the second quarter as its net profit rose by 28.95% year on year to P6.43 billion in the period.
PNB, Bank of the Philippine Islands (BPI) and Security Bank Corp. also bucked the trend of declining net interest margins, he said.
First Metro Investment Corp. Head of Research Cristina S. Ulang noted that the country’s biggest banks in asset terms, namely, BDO Unibank, Inc., Metropolitan Bank & Trust Co., and BPI posted average profit growth of 5% in the first semester.
“The top three banks maximized their earnings growth potential in spite of the more challenging net interest margin environment by lending aggressively and growing fee income,” Ms. Ulang said.
These three lenders also recorded better NPL ratios in the period, she added.
BDO’s net income was flat year on year at P20.985 billion in the second quarter. This brought its first-half net earnings to P40.76 billion, up by 3.12% from the same period in 2024.
Meanwhile, Metrobank’s net profit rose by 8.44% to P12.59 billion in the three months through June. For the first semester, its earnings increased by 5.25% year on year to P24.85 billion.
Lastly, BPI’s net income went up by 7.02% to P16.44 billion in the second quarter, bringing its six-month profit to P32.96 billion, rising by 7.83% year on year.
“Banks’ top lines remain robust, but bottom lines have been trimmed as institutions invest in long-term growth,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan added.
“Some are expanding their reach by opening branches in untapped areas, while others enhance IT capabilities for seamless digital banking. These initiatives may weigh on short-term profitability but are ultimately beneficial for sustaining long-term competitiveness and growth.”
RATE CUTS TO DRIVE LENDINGMonetary policy actions here and in the United States will affect Philippine banks’ income prospects moving forward, Mr. Limlingan said, with further cuts likely to drive demand for credit and investment gains.
“We see loan growth and interest income as the key drivers of bank profitability for the remainder of the year, especially with holiday spending set to kick in over the next few months,” he said.
Meanwhile, even as more banks expand their consumer lending business for margin growth, asset quality risks remain low, he added.
“We are seeing banks expand their loan portfolios in the consumer segment which, by nature, carries a riskier profile compared to institutional lending. However, many banks have maintained, if not improved, their NPL ratios this year.
This indicates that banks remain meticulous in assessing the creditworthiness of their retail borrowers and are not compromising asset quality despite the steady growth in their loan portfolios.”
However, the weak global trade environment due to growing protectionism among major economies could pose an indirect risk to banks’ earnings as this could affect their borrowers’ operations and, in turn, their capacity to repay their loans, Mr. Limlingan said. — Aaron Michael C. Sy