NBQBs

Non-Bank Financial Institutions

with Quasi-Banking Functions
(NBQBs)
Overview NBQBs post record high
Non-bank financial institutions(NBFIs) are financial bottom line figures
institutions supervised by BSP. These do not have a
full banking license but they facilitate bank-related The year-on-year growth in net profit surpassed
financial services, i.e., investment, risk pooling, the 10.2 percent growth in average assets and the
contractual savings and market brokering. In the 21.3 percent expansion in average equity. The NBQB
Philippines, NBFIs are composed of the non-banks industry posted a net profit of P8.8 billion in end-June
with quasi-banking functions and non-banks without 2013, which accounted for 43.3 percent of the total
quasi-banking functions.
net profit of NBFIs. This is more than twice the profit
recorded at end-June 2012 of P3.9 billion. FCs with
Non-banks with quasi-banking functions (NBQBs)
QB accounted for 17.2 percent of net profit while
consist of financial institutions engaged in the
IHs with QB accounted for 82.8 percent. Operating
borrowing of funds from 20 or more lenders for
income improved by 36.0 percent to P11.8 billion
the borrowers own account through issuances,
from year agos P8.7 billion. This is due to the surge in
endorsement or assignment with recourse or
the non-interest income particularly of trading gains
acceptance of deposit substitutes for purposes
as it more than tripled to P3.9 billion in end-June
of re-lending or purchasing receivables and other
2013 from P1.2 billion in end-June 2012. Net interest
obligations.
income also rose by 5.2 percent to P4.8 billion while
non-interest income soared by 69.7 percent to P7.0
As of end-June 2013, total resources of NBQBs
billion as the economy picked up particularly driven
accounted for 40.4 percent (P181.4 billion) of the
by construction, real estate, services catering to
total assets of non-bank financial institutions (NBFIs)
outsourcing and insourcing, tourism and remittances.
supervised by the BSP, total of which composed 5.0
percent (P449.3 billion) of the Philippine Financial
Operating expenses increased by 30.3 percent to
Systems total resources (P9,062.5 billion). This is a
P5.8 billion from P4.4 billion same period last year.
higher proportion compared to same period last years
Accordingly, cost-to-income ratio slightly rose to 38.9
37.8 percent (P164.7 billion) which then represented
percent from the 38.6 percent at end-December
5.5 percent (P435.1 billion) of the Philippine Financial
2012 but better than the 39.0 percent recorded at
Systems total resources (P7,845.1 billion).
end-June 2012 (Figure 36).
During the review period, there were 13 operating
NBQBs in the country [six investment houses Figure 36
Non-Bank Financial Institutions with Quasi-Banking Functions (NBQBs)
(IHs), six financing companies (FCs) and one other Cost-to-Income Ratio
non-bank]. The number of NBQBs declined from In P Billion (LHS) In Percent (RHS)
last semesters 14 operating NBQBs due to the 25.0 80.0

approval by the Monetary Board of the request for 70.0

revocation of quasi-banking license of an IH, i.e., BPI 20.0

60.0

Leasing Corporation on 08 January 201315. Of the 13 15.0

50.0

operating NBQBs, seven are linked to universal and 40.0

commercial banks (two IHs and five FCs). The number 10.0
30.0
of operating NBQBs is 0.2 percent of the total 6,319 20.0
NBFIs supervised/regulated by the BSP. NBQBs total 5.0

office network stood at 76 (13 head offices and 63

10.0

branches/other offices). 0.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 June
0.0

2013*
Operating Income (LHS)
Operating Expense (net of bad debts and provisions) (LHS)
Cost-to-Income (RHS)
___________________________

15
Circular Letter (CL) 2013-003 dated 08 January 2013.

19
Status Report on the Philippine Financial System
Figure 37
Non-Bank Financial Institutions with Quasi-Banking Functions (NBQBs)
Asset and Funding Mix
Equity Cash and Due Cash and Due
Investments, from Banks, from Banks,
net, 16.5% 14.7%
Equity
41.0% Investments,
net,
36.9%

June 2013 June 2012

P181.4 billion P164.7 billion

ROPA, net, ROPA, net,

0.4% Loans, net, 0.6%
36.5% Other Assets, Loans, net,
6.6% 41.2%
Other Assets,
5.6%

Likewise, NBQBs provided better return on assets percent share (P66.3 billion), down from year agos
(ROA) at 7.2 percent, up 4.6 percent at end-June 2012 41.2 percent (P67.8 billion). Investments, net, on the
and return on equity (ROE) at 30.8 percent, up from other hand, occupied a 41.0 percent share (P74.4
21.9 percent. billion), up from last years 36.9 percent share (P60.8
billion).
Resources channeled
mostly to loans and Manageable loan and
investments asset quality
Total assets of NBQBs stood at P181.4 billion, higherNBQB loan and asset quality remained manageable
by 10.2 percent from year agos P164.7 billion (Tablefor the first half of 2013. NBQBs non-performing
43). IHs with QB held a slightly bigger share of NBQBloans (NPL) ratio of 4.9 percent slightly grew from
total assets with a 54.6 percent share (P99.0 billion),
year agos 4.7 percent, which resulted from the slight
up from last years 51.5 percent share (P84.8 billion).
2.4 percent growth in NPLs to P3.4 billion from same
Meanwhile, FCs with QB pitched in the remaining time last years P3.3 billion. By subgroup, IHs with
45.4 percent share (P82.4 billion), down from year QB posted better NPL ratio at 0.4 percent, as against
agos 48.5 percent share (but up from P79.8 billion).FCs with QB NPL ratio of 5.3 percent. Meanwhile,
NPL coverage ratio dropped to 71.4 percent from
NBQB assets were mainly channeled to loans, net, year agos 71.9 percent which was caused by the 2.4
and investments, net, with a combined share of 77.5 percent growth in NPLs surpassing the 1.8 percent
percent of total assets, down from year agos 78.1 rise in LLRs.
percent share (Figure 37). Loans, net, garnered 36.5

Figure 38
Non-Bank Financial Institutions with Quasi-Banking Functions (NBQBs)

NPLs and NPL COVERAGE RATIO NPAs and NPA COVERAGE RATIO DISTRESSED ASSETS RATIO
In P Billion In Percent In P Billion In P Billion In Percent
In Percent
5.0 160.0 6.0 70.0 6.0 9.0
4.5
140.0 8.0
5.0 60.0 5.0
4.0
120.0 7.0
3.5 50.0
4.0 4.0 6.0
100.0
3.0
40.0 5.0
2.5 80.0 3.0 3.0
30.0 4.0
2.0
60.0
2.0 2.0 3.0
1.5 20.0
40.0
2.0
1.0
1.0 10.0 1.0
20.0 1.0
0.5

- 0.0 - 0.0 0.0 0.0

NPAs (LHS) NPA Reserves (LHS) NPAs (LHS)

NPLs (LHS) LLRs (LHS)
RLs, Performing (LHS)
NPL Ratio (RHS) NPL Coverage Ratio (RHS) NPA Ratio (RHS) NPA Coverage Ratio (RHS)
Distressed Assets Ratio (RHS)

20
As of end-June 2013, NBQBs real and other
properties acquired (ROPA) slightly dropped by 15.6
percent to P0.8 billion from same period last years
P0.9 billion. As a result, ROPA-to-gross assets ratio
also went down to 0.4 percent from same period last
years 0.5 percent. By subgroup, FCs with QB posted
better ROPA-to-gross assets ratio at 0.4 percent as
against to 0.5 percent of IHs with QB. ROPA reserves
went down to P0.1 billion from same time last years
P0.2 billion resulting to a lower ROPA coverage ratio
at 14.4 percent from year agos 20.0 percent.
NBQBs non-performing assets (NPA) ratio of 2.3
percent fell from year agos 2.6 percent. By subgroup,
IHs with QB posted better NPA ratio at 0.5 percent,
compared to FCs with QB NPL ratio of 4.5 percent.
NPA coverage ratio was enhanced to 59.2 percent
from year agos 58.5 percent. This is due to the 1.9
percent decline in the NPAs caused by 15.6 percent
drop in ROPA surpassing the decline in NPA reserves.
As of the end-June 2013, NBQBs distressed assets
went down to P4.4 billion from P4.5 billion at
endJune 2012 resulting to a distressed assets ratio
of 6.3 percent, same as year ago. By subgroup, FCs
with QB posted better distressed assets ratio at 6.07
percent, as compared to IHs with QB of 8.53 percent
(Figure 38).
Ample liquidity, stable
funding and adequate
capitalization
The NBQB industry maintained ample liquidity as
liquid assets-to-bills payable ratio expanded to 81.2
percent from year agos 63.1 percent. Meanwhile,
Figure 39
Non-Bank Financial Institutions with Quasi-Banking (NBQBs)
Funding Mix
Capital Accounts,
24.4%
June 2013
P181.4 billion
Other Liabilities,
14.5%
Bills Payable,
61.1%
gross loans-to-bills payable ratio dropped to 62.0
NBQBs
percent from year agos 64.5 percent (Table 44). Most
of the FCs and IHs with QB are also linked to universal
and commercial banks which can cushion the NBQB
industry whenever liquidity problems arise.
The industrys total liabilities stood at P137.1 billion,
up by 7.0 percent (P9.0 billion) from year agos
P128.1 billion. Bills payable, which comprise the bulk
(80.9 percent) of total liabilities, rose by 1.9 percent
yearon-year. Other liabilities which formed the
remaining 19.1 percent of total liabilities also grew
by 35.8 percent (Figure 39).
The industrys total capital accounts posted a
robust growth of 21.3 percent (P7.8 billion) to reach
P44.3 billion from year agos P36.5 billion. This was
influenced by the growth in retained earnings and
undivided profits by 40.5 percent to P32.3 billion
from year agos P23.0 billion. Meantime, capital stock
fell by 11.2 percent to P12.0 billion from year agos
P13.5 billion. This is due to the decline in the number
of operating NBQBs to 13 from 15 a year ago.
By sub-group, IHs with QBs retained earnings beefed
up by 67.4 percent surpassing the 9.3 percent decline
in FCs with QBs retained earnings. On the other
hand, the capital stock of both FCs and IHs with QB
fell by 13.4 percent and 10.0 percent, respectively.
The industry continued to be well capitalized during
the review period. Total capital accounts-to-total
assets ratio for NBQBs increased to 24.4 percent
from year agos 22.2 percent.
Capital
Accounts,
22.2%
June 2012
P164.7 billion
Other Liabilities,
11.7%
Bills Payable,
66.1%
21
Status Report on the Philippine Financial System

Non-Stock Savings
and Loan Associations (NSSLAs)
from 13.3 percent at end-June 2012, respectively. On
Overview the other hand, cost-to-income ratio went down to
12.5 percent from year agos 18.4 percent due to the
Non-stock savings and loan associations (NSSLAs)16 17.0 percent growth in operating income surpassing
are non-stock, non-profit corporations engaged 32.5 percent increase in operating expenses to P2.4
in the business of accumulating members billion from P1.8 billion (Figure 40).
savings for lending to households by providing
long-term financing for home building and/ Figure 40
or development and for personal finance. Non Stock Savings and Loan Associations (NSSLAs)
Cost-to-Income Ratio
As of end-June 2013, total resources of NSSLAs In P Billion (LHS) In Percent (RHS)
comprised 29.6 percent (P133.0 billion) of the 20.0 25.0

total resources of the BSP-supervised NBFIs, which 18.0

constituted 5.0 percent (P449.3 billion) of the 16.0 20.0

Philippine Financial Systems total resources (P9,062.5 14.0

billion). This is a higher proportion compared to 12.0 15.0

same period last years 27.1 percent (P117.9 billion) 10.0

which then represented 5.5 percent (P435.1 billion) 8.0 10.0

of the Philippine Financial Systems total resources 6.0

(P7,845.1 billion). Operations of the NSSLA industry 4.0 5.0

remained favorable and profitable as a result of 2.0

credit expansion funded principally by deposits and 0.0 0.0

additional capital contribution from their members. 2009 2010 2011 2012 June 2013

Operating Income (LHS)

Operating Expense (net of bad debts and provisions) (LHS)
During the review period, there were 72 operating Cost-to-Income (RHS)

NSSLAs in the country at end-June 2013, with

NSSLA industry assets

one additional association established in the
second half of 201217. This figure accounted for

continued to expand
only 1.1 percent of the total 6,319 operating
NBFIs under the supervision/regulation of BSP.
NSSLAs total number of offices stood at 198 with
72 head offices and 126 branches/other offices. Total assets of NSSLAs stood at P133.0 billion, higher
by 12.8 percent from year agos P117.9 billion (Table

NSSLAs posted higher 47). These were mainly channeled to loans, net with
76.3 percent share (P101.4 billion), lower than year

earnings agos 77.0 percent share (but up from P90.7 billion),

as shown in Figure 41. Meantime, cash and due from
banks, investments, net and real and other properties
The NSSLA industry posted a net profit of P7.5 billion acquired and other assets held the remaining 23.7
for the period ended 30 June 2013, accounting for percent (P31.5 billion) of NSSLAs total assets,
37.2 percent of the total NBFIs profit of P20.2 billion. up from last years 23.0 percent (P27.2 billion).
This is higher by 25.2 percent from P6.0 billion
earned same period last year. Operating income
grew by 17.0 percent to P10.2 billion from year agos
Loan and asset quality
P8.7 billion supported by the growths in net interest
income (20.8 percent to P8.5 billion) and non-interest
continued to improve
income (1.2 percent to P1.7 billion). A growing local NSSLA loan and asset quality continued to improve in
economy fed by consumer spending and inflows from the first half of 2013. NSSLAs non-performing loans
OF remittances, IT-BPO and tourism, elevated credit (NPL) ratio of 8.8 percent slightly went down from
demand with NSSLA posting an 11.8 percent rise in ___________________________

loan portfolio in the first half of 2013. NSSLAs are among the non-bank financial institutions being supervised by BSP
16

pursuant to Republic Act No. 8367, otherwise known as the Non-Stock Savings and

Other profitability indicators similarly showed an Loan Association Act of 1997.

uptrend. The industrys return on assets (ROA) and 17

Circular Letter 2013-041 dated 25 July 2013 pertains to the approval by the
return on equity (ROE) improved to 13.3 percent
Monetary Board of the establishment of Sanitary Care Products Asia on 13 December
from 10.4 percent at end-June 2012 and 17.1 percent 2012. It started its operations on 15 May 2013.

22
 NSSLAs
Figure 41
Non-Stock Savings and Loan Associations (NSSLAs)
Asset and Funding Mix Equity
Investments, Cash and Due
Equity
Cash and Due net, from Banks,
Investments, ROPA, net,
from Banks, 7.2% 7.1%
ROPA, net, net, 0.2%
0.2% 7.9% 8.4%
Other Assets, Other Assets,
7.2% 8.5%

June 2013 June 2012

P133.0 billion P117.9 billion

Loans, net,
Loans, net,
76.3%
77.0%

year agos 9.8 percent. The 11.8 percent growth As of the end-June 2013, NSSLAs distressed assets
to P101.4 billion in total loan portfolio triggered ratio declined to 9.0 percent from same period
the decrease in the NPL ratio. Meanwhile, NPL last years 10.0 percent as a result of unchanged
coverage ratio widened to 81.8 percent from year distressed assets at P9.9 billion and the growth in
agos 77.6 percent which was caused by 5.4 percent loans (Figure 42).
rise in LLRs to P7.9 billion from P7.5 billion.

As of end-June 2013, NSSLAs real and other

properties acquired (ROPA) were steady at P0.2 NSSLAs enjoyed
billion while gross assets grew by 12.4 percent to
P140.9 billion. This resulted to the slight drop in
ample liquidity, stable
ROPA-to-gross assets ratio to 0.1 percent from 0.2
percent same period last year.
funding and adequate
NSSLAs non-performing assets (NPA) ratio declined
capitalization
to 7.0 percent from year agos 7.9 percent. The 12.4 NSSLAs maintained adequate liquidity to service
percent buildup in gross assets to P140.9 billion deposit withdrawals. For the first half of 2013, the
triggered the drop in the NPA ratio. Meantime, ratio of cash and due from banks-to-deposits stood
NPA coverage ratio widened to 80.1 percent from at 44.2 percent from 38.8 percent at end-June
same time last years 76.0 percent due to the 5.4 2012 while the ratio of liquid assets-to-deposits
percent increase in NPA reserves to P7.9 billion registered at 82.2 percent from 85.3 percent at
from P7.5 billion. end-June 2012.

Figure 42
Non-Stock Savings and Loan Associations (NSSLAs)

NPLs and NPL COVERAGE RATIO NPAs and NPA COVERAGE RATIO DISTRESSED ASSETS RATIO
In P Billion In Percent In P Billion In Percent In P Billion In Percent
14.0 160.0 14.0 90.0 14.0 20.0

140.0 80.0 18.0

12.0 12.0 12.0
70.0 16.0
120.0
10.0 10.0 10.0 14.0
60.0
100.0
8.0 12.0
8.0 50.0 8.0
80.0 10.0
6.0 6.0 40.0 6.0
60.0 8.0
30.0
4.0 4.0 4.0 6.0
40.0 20.0 4.0
2.0 2.0 2.0
20.0 10.0 2.0

- 0.0 - 0.0 0.0 0.0

NPLs (LHS) LLRs (LHS) NPAs (LHS) NPA Reserves (LHS)

NPAs (LHS) Distressed Assets Ratio (RHS)
NPL Ratio (RHS) NPL Coverage Ratio (RHS) NPA Ratio (RHS) NPA Coverage Ratio (RHS)

23
Status Report on the Philippine Financial System

The industrys total liabilities stood at P30.4 billion,
up by 17.1 percent (P4.5 billion) from year agos
P25.9 billion. Deposit liabilities, which comprised
the bulk (83.3 percent) of total liabilities, rose
by 17.1 percent to P25.3 billion from year agos
P21.6 billion. Bills payable and other liabilities,
which formed the remaining 16.7 percent of total
liabilities, also grew by 17.5 percent to P5.1 billion
from year agos P4.3 billion (Figure 43).
The industrys total capital accounts were shored up
by 11.6 percent (P10.6 billion) to reach P102.6 billion
from year agos P92.0 billion. This was influenced
by the growth in capital contributions from
members and undistributed earnings. Total capital
accountstototal assets ratio, which measures the
extent of leveraging during the period, determines
how much capital is needed to cushion against credit
risks of the NSSLA industry. Said metric is important
considering the funding structure of NSSLAs. While it
was slightly down to 77.2 percent from the previous
years 78.0 percent, the ratio remains high as the
industrys funding source primarily comes from its
members capital contribution and undistributed
profit from operation.

Figure 43
Non-Stock Savings and Loan Associations (NSSLAs)
Funding Mix
Deposit
Liabilities, 18.3%
Deposit Liabilities,
19.0%

Bills Payable,
1.2% Other
liabilities, 3.4%

Other liabilities, Bills

2.6% Payable, 0.3%
June 2013 June 2012
P133.0 billion P117.9 billion

Capital
Capital Accounts, Accounts, 78.0%
77.2%

24
 Trust Operations
Trust Operations
The shift in the type of asset held by trust entities,
Overview Figure 44. Trust Asset Mix
As of End-June 2013
Trust and other fiduciary services continued with
its upward trajectory, ending the first half of 2013
at P3,039.3 billion, 0.4 percent (P13.4 billion) more Cash and Due from
banks
37.7%
37.7

than year agos P3,025.9 billion. While trust assets Deposits in Banks 8.7%

grew, it did so at a slower rate than year agos 17.9 Financial Assets, net 41.1%
percent growth rate as cash and due from banks, its Total Assets Loans, net 2.1%
primary growth driver in the past, declined by P267.5 P3,039.3 billion
Equity Investments (net) 2.5%
billion. In its stead, investment in equity securities,
ROPA (net)
government securities, and other debt securities 0.0%

combined, went up by P315.7 billion, roughly twice Other assets

7.9%

their level of growth a year ago of P158.2 billion.

Meanwhile, deposits in banks rose by P72.3 billion,

almost four times its increase of P18.3 billion a year
ago.
Trust Operations
Registered higher net
Income
Despite the slowdown in the growth of trust
accounts, income from trust grew by 15.4 percent
(P0.7 billion) to P4.8 billion from P4.2 billion a year
ago indicating more efficient handling of accounts as
reflected further by the 23.9 percent (P0.6 billion)
increase in net income.
Investor Sentiment
Spurred Preference For
Equity Securities
Preference for equity securities, which formed 15.8
percent of its total assets, its second biggest holding
next to cash and due from banks, was spurred mostly
by investor sentiment which in turn was driven by
the robust growth of the countrys economy as well
as the continued recovery of its two major trading
partners, namely, the United States and Japan.
Next to equity securities, government securities
represented the third biggest group of assets held
by trust offices. While they provide lower returns
however, was primarily influenced by the issuance of
Memorandum No. M-2013-021 in May 2013. Said
memorandum limited special deposit account (SDA)
access of trust entities and served to reinforce the
objective of Memorandum No. M-2012-034 issued
in July 2012, that is to discourage the use of the SDA
as an investment vehicle and for it to revert back to
its originally intended purpose of absorbing excess
liquidity in the market.
This notwithstanding, the publics appetite for SDAs
remains to be served by the Unit Investment Trust
Fund (UITF) as it is the only type of pooled funds
granted access to the SDA facility. In fact, because of
its access to SDAs, its share of trust accountabilities
more than doubled to 14.1 percent (P427.1 billion)
from 6.3 percent (P162.4 billion) a year ago,
indicating a shift in the form of accountabilities held
as agency accounts, other fiduciary services and
special purpose trust all posted declines. Further,
it is worth noting that the increment in UITFs
represented 74.8 percent (P264.7 billion) of the total
hike in trust accounts. During mid-2012 and 2011,
growth stemmed mostly from agency accounts, but
with the limit on SDA access, adjustments on both
the assets and accountabilities of trust entities were
made.
Growth/(Decline) in Total Accountabilities
700.00
600.00
500.00
Special Purpose Trust
400.00

relative to equity securities, government securities 300.00

Advisory/Consultancy

offer a safe haven for investments making them 200.00 Other Fiduciary Services

attractive especially given the backdrop of low 100.00

Wealth/Asset/Fund Management
-
interest rate environment and strong economic (100.00) Jun-13 Jun-12 Jun-11
Accounts (Agency)

performances backed by the credit rating upgrade

Wealth/Asset/Fund Management
Accounts (Trust)
(200.00)
given by Fitch as well as Standard and Poors in 2013. (300.00)

(400.00)

25
 Status Report on the Philippine Financial System

Asset Mix by Total Managed Fund

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Jun-12 Jun-13 Jun-12 Jun-13 Jun-12 Jun-13 Jun-12 Jun-13
Trust Agency Other Fiduciary Special Purpose

Trust Agency Other Fiduciary Special Purpose

June 2012 June 2013 June 2012 June 2013 June 2012 June 2013 June 2012 June 2013
Cash and Due from banks 14.0 18.8 74.2 61.6 27.1 22.4 4.1 4.8
Deposits in Banks 9.7 12.5 4.1 4.7 6.9 9.7 4.3 7.5
Financial Assets, net 67.6 62.9 18.1 30.7 10.6 14.2 0.1 0.1
Loans, net 4.8 1.9 2.9 2.5 0.1 0.0 82.5 73.6
Equity Investments (net) 0.6 0.5 0.2 0.1 10.1 14.0 - -
ROPA (net) ... ... ... ... ... ... - -
Other assets 3.3 3.3 0.4 0.5 45.2 39.7 9.0 14.0

. . . Less than 0.05 percent

Trust Accounts Had Thrift Banks and

Ahigh Proportion Of Investment Houses
Cash And Due From
Jun-12 Jun-13 Jun-12
Influence Growth Of
Jun-13 Jun-12 Jun-13
s
Banks 46.9
6.5
30.7
38.4
8.8
40.4
77.3
2.7
16.3
Trust and Fiduciary
48.1
10.2
38.9
5.1
1.1
61.5
1.9
2.4
73.9

Accounts
3.0 1.7 2.0 1.2 31.7 20.1
2.4 2.5 0.7 0.9 0.2 0.1
By Managed Fund, the change in the type of assets
0.0 0.0 - - - -

held from cash and due from accounts to financial

10.5
100.0
8.1
100.0
1.0
100.0
0.7
100.0
0.4
100.0
1.6
100.0
assets was notable in agency accounts and other By type of financial institution, the change in asset
3,025.87
fiduciary accounts. Trust accounts maintained its holdings may be observed in universal/commercial
3,039.32
highJun-12
proportion Jun-13
of cash and due from banks (U/KBs), thrift
accountsJun-13
Jun-12
banks Jun-13
Jun-12
(TBs) and non-bank
s
indicating a more conservative
1,378.0
189.4
1,129.3
258.3 approach to its
1.2asset
34.4 financial
16.6
3.5
institutions (NBFIs),
2.3
0.5
but is most
1.2
1.6
pronounced
placements
902.8while special
1,186.4 purpose accounts 7.3 held in NBFIs which grew27.6
13.4 by P21.1 48.7
billion to P66.0
87.7
mostly loans
69.3owing to
51.3
its nature.
74.1
0.9
0.3 billion
0.4
0.3 and TBs, which dropped
14.2
0.1 by P10.0 billion to
13.3
0.1
0.2
309.1
0.2
239.2
-
0.4
P34.5
-
0.3
billion. The rise in- NBFIs was- due primarily to
0.2 1.1
2,936.5 2,938.8 44.5 34.5 44.9 66.0

Universal and Commercial Banks Thrift Banks NBFIs

Figure 46. Asset Mix by Financial Institution
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Jun-12 Jun-13 Jun-12 Jun-13 Jun-12 Jun-13

Universal and Commercial Thrift Banks NBFIs

Banks

UKBs TBs NBFIs

Dec 2011 Dec 2012 Dec 2011 Dec 2012 Dec 2011 Dec 2012
Cash and Due from banks 46.9 38.4 77.3 48.1 5.1 1.9
Deposits in Banks 6.5 8.8 2.7 10.2 1.1 2.4
Financial Assets, net 30.7 40.4 16.3 38.9 61.5 73.9
Loans, net 3.0 1.7 2.0 1.2 31.7 20.1
Equity Investments (net) 2.4 2.5 0.7 0.9 0.2 0.1
ROPA (net) . . . . . . . . . . . . . . . . . .
Other assets 10.5 8.1 1.0 0.7 0.4 1.6

. . . Less than 0.05 percent

26
 Trust Operations
Figure 47. Peso Domestic Deposit Liabilities (Net of Trust
Deposits) of Banks with Trust Functions vs. Trust Assets
In P Billion In Percent
4,500.0
230.0
4,000.0
3,500.0 180.0
3,000.0
130.0
2,500.0
2,000.0 80.0
1,500.0 30.0
1,000.0
(20.0)
500.0
- (70.0)
June June June June June June June June June
2005 2006 2007 2008 2009 2010 2011 2012 2013
Deposit Liabilities (LHS) Trust Assets (LHS)
% Growth Deposits (RHS) % Growth Trust (RHS)

financial assets, specifically, debt securities of private
corporations held by residents which accounted for
78.5 percent (P16.6 billion) of the increase in the
assets of NBFIs. On the other hand, financial assets
of TBs almost doubled from P7.3 billion to P13.4
billion, albeit not enough to dampen the P17.8 billion
reduction in its SDAs lodged under cash and due from
banks. Thus, despite cornering the biggest amount of
trust assets, it was not the U/KBs that had the most
influence on this periods growth. Rather, it was
the NBFIs that dictated the direction of trust assets
weighed down only by TBs, being the only group that
registered a decline for the period.
Trust Accounts Slowed
Down As Deposits
Gained Momentum
Because of the limited access to SDAs, investors
were forced to lodge their finances in other forms
of investment, one of which being deposits in banks.
This then led to reduced trust to deposit ratios
among banks with trust licenses to 53.9 percent
from 61.7 percent same period last year. This was
mostly influenced by U/KBs as the group continued
to dominate both the trust and deposit market.
FCDU Vs. Trust
Comparing FCDU assets of the Philippine Banking
System (PBS) as against the FCDU assets held by trust
entities, it appears that those under trust edge out
those in the PBS, P3,039.3 billion to P1,434.4 billion.
Despite being slightly more than double the FCDU
assets, the combined net income of peso and FCDU
trust assets at P3.2 billion is less than a fourth of
FCDU net income of P20.2 billion.

27
Status Report on the Philippine Financial System

Foreign Currency Deposit Unit

(FCDU) System
Overview
Banks authorized to engage in FCDU18 operations
remained sound and stable for the first semester
of 2013 on improved macroeconomic environment
and strong performance of the Philippine banking
system. Overall operations also yielded positive
results in the first semester of 2013 as net profit
posted a positive growth of 7.3 percent despite the
prevailing low interest rates and relative strength
of the peso against the US dollar. Improved cost-
efficiencies and boost in non-interest income from
the sale/redemption/de-recognition of non-trading
financial assets buoyed earnings during the period.
The FCDU system accounted for 16.7 percent of
total system wide assets, albeit smaller in share than
year agos 18.8 percent resulting from the combined
effect of the contraction of portfolio investments in
held-tomaturity (HTM) financial assets of US$1.7
billion and of deposit liabilities of US$141.5 million.
Nonetheless, total assets expanded by 2.7 percent
year-on-year on relatively stable funding base
and efficient allocation of resources to loan and
investment portfolios.
profit accounted for 20.9 percent of the total net
profit of the banking system (excluding rural and
cooperative banks19).
Total operating income for the first semester of
2013 reached US$1.4 billion, higher by 3.9 percent
or US$51.5 million from US$1.3 billion posted at
end-June 2012 on account of the robust growth
in non-interest income of 16.4 percent to US$0.7
billion from US$0.6 billion same period last year. The
growth was mainly supported by gains on the sale/
redemption/de-recognition of non-trading financial
assets and liabilities amounting to US$138.6 million.
Accordingly, the share of non-interest income to
total operating income rose to 50.2 percent from
44.8 percent same period last year.
On the other hand, net interest income declined
by 6.2 percent to US$0.7 billion on a low interest
environment. In particular, the US$63.6 million
or 24.5 percent decline in interest income from
heldtomaturity (HTM) government securities
significantly pulled the net interest income for the
period. Similarly, net interest margin narrowed by 20
bps to 2.1 percent from 2.4 percent same period last
year.

Asset quality remained below one percent and Figure 48

liquidity asset cover of 30 percent on all foreign The FCDU System: Results of Operations
currency liabilities was not breached as liquid For End-Periods Indicated

assetstodeposit ratio (exclusive of ROP holdings) In US$ Millions In Percent (%)

stood at 49.7 percent, albeit lower than year agos 1,400.0 20.0
51.5 percent. 1,200.0
15.0
1,000.0
800.0 10.0
As of end-June 2013, there were 78 banks consisting 600.0
of 36 universal and commercial banks, 30 thrift 400.0 5.0
banks and 12 rural and cooperative banks authorized 200.0
- 0.0
to engage in Foreign Currency Deposit Unit (FCDU) (200.0) Interest Income Non-Interest Interest Expense Non-Interest Net Profit (LHS) -5.0
operations but lower by two banks from a year ago (400.0) (LHS) Income (LHS) (LHS) Expense (LHS)

due to the merger of Allied Banking Corporation and (600.0)

Philippine National Bank on 09 February 2013 and
the closure of Cooperative Rural Bank of Bulacan
effective on 23 May 2013. Only 69 out of 78 banks,
however, had actual FCDU operations which may
warrant future supervisory review.
June 2013 June 2012 YoY Change (RHS)
-10.0
During the review period, non-interest expenses
declined by 4.0 percent to US$0.2 billion on account
of the combined 22.6 percent reduction in other
administrative expenses and fees or commissions
expenses. Accordingly, cost-to-income ratio improved

FCDU operations to 15.2 percent from 16.6 percent same period last year.

remained profitable On improved bottom line and cost-efficiency, return

on assets (ROA) ratio fared better at 3.5 percent from
3.3 percent recorded at end-June 2012.
Banks under the FCDU system posted a positive
bottom line for the period ended 30 June 2013 as _____________________________________________________

net profit grew by 7.3 percent (US$76.8 million) to 18

Prepared in compliance with Foreign Currency Deposit Act (Republic
US$1.1 billion from US$1.0 billion at end-June 2012 Act No. 6426).
(Figure 48). Converted into peso terms, FCDU net 19
Data for the period end-March 2013

28
 FCDU System
Figure 49
The FCDU System: Asset Growth Figure 51. FCDU Asset Mix
For End-Periods Indicated For End-Periods Indicated
In US$ Millions In Percent (%)
40,000.0 20.0
35,000.0 15.0
30,000.0 10.0
25,000.0 June 2012 June 2013
5.0 $32.6 billion $33.5 billion
20,000.0
0.0
15,000.0
10,000.0 -5.0

5,000.0 -10.0
- -15.0
19992000200120022003200420052006200720082009201020112012 June June June
2012 2013 2012 2013
Financial Assets, net 51.0% 50.9%
Total YOY Growth HP Trend Loans, net 33.6% 35.7%
Cash and Due from banks 12.1% 10.3%

Asset expansion Other Assets 3.3% 3.1%

continued Portfolio investments accounted for the bulk of

FCDU assets
Total assets expanded, albeit lower compared to a
year ago, by 2.7 percent to $33.6 billion from $32.6 As of end-June 2013, financial assets other than
billion at end-June 2012. On average, FCDU assets loans, net, accounted for the lions share of total
expanded annually by 3.9 percent. Despite the assets with 50.9 percent ($17.1 billion) from 51.0
fluctuations in levels, its long-term20 trend showed percent ($16.7 billion) a year ago, followed by loans,
a general uptrend (Figure 49). During the review net at 35.7 percent share ($12.0 billion) from 33.6
period, FCDU assets remained less than 20 percent percent share ($11.0 billion), and cash/due from
of total assets of the banking system. Combined with banks at 10.3 percent share ($3.5 billion) from
other foreign currency denominated assets under 12.1 percent share ($3.9 billion). The remaining
foreign regular and foreign offices, the share barely 3.1 percent share ($1.0 billion) came from other
rose to 21.6 percent. Meanwhile, FCDU assets of assets. FCDU investments accounted for 38.0
trust entities only accounted for 6.1 percent of total percent of the total portfolio investment of the
assets of all trust entities. Details are discussed under banking system, down from year agos 40.8 percent.
the Trust Operations section of the report.
The investment portfolio of banks authorized to
On a per bank basis, BDO was still the largest of the engaged in FCDU operations are mostly placements
FCDU banks in terms of asset size with an 18.5 percent in securities issued by residents, which grew
($6.2 billion) share, trailed by Metrobank at second yearonyear by 8.6 percent to US$11.8 billion
place with a share of 9.5 percent ($3.2 billion). RCBC from US$10.9 billion a year ago. These were mostly
with a share of 8.2 percent ($2.8 billion) went up investments in ROPs (sovereign debt securities) at
from fourth to third place this year. US$7.8 billion and higher by 6.0 percent from year
agos ROP holdings of US$7.3 billion. Increased ROP
The top 5 FCDU banks represented 50.9 percent holdings may be attributed to improved ROP prices
($17.1 billion) of the total FCDU systems assets, and declining CDS rates of the Philippines at the heels
higher than the 47.8 percent share a year ago (Figure of the series of sovereign ratings upgrade received
50). from Fitch, Standard & Poors and JCRA during the
first half of 2013 (Figure 52).
Figure 50. Top 5 FCDU Banks (In Assets)
Figure 52. USD 5-YEAR CREDIT DEFAULT SWAP (CDS) SPREADS
As of end-June 2013 PHILIPPINES VS. ASEAN-4
In BPS

Assets 350.0
Bank % Share
(In $ Millions) 300.0
BDO UNIBANK 6,205.0 18.5%
250.0
METROBANK 3,194.5 9.5%
RCBC 2,756.8 8.2% 200.0

BPI 2,722.1 8.1% 150.0

CITIBANK, N.A. 2,187.6 6.5%
Sub-total 17,066.0 50.8% 100.0

Others 16,450.9 49.2% 50.0

Total 33,516.9 100.0%
0.0

_____________________________________________________
THAI CDS SPREAD MALAYSIA CDS SPREAD INDONESIA CDS SPREAD
Estimated using a Hodrick-Prescott filter to smoothen the growth
20
PHILIPPINE CDS SPREAD ASEAN-4
series.

29
Status Report on the Philippine Financial System
By booking, these investments were mostly in
available-for-sale (AFS) debt and equity securities at
70.6 percent or US$12.3 billion (up from year agos
58.4 percent or US$9.6 billion), followed by held-to-
maturity (HTM) debt and equity securities at 15.0
percent (down from 26.5 percent) and held-for-
trading (HFT) at 9.3 percent (up from 7.5 percent).
The higher proportion of AFS and HFT financial assets
during the review period is indicative of brisk FCDU
trading activities.
Portfolio investments for non-resident issues
accounted for a smaller share of 32.7 percent to
US$5.7 billion from year agos 34.3 percent (almost
same level). Overall level also expanded less than
one percent year-on-year on improved market and
investor sentiment.
Manufacturing, utilities and trade-related sectors
were major beneficiaries of FCDU loans
FCDU loans expanded by 7.7 percent to US$12.0
billion from US$11.1 billion a year ago. Dollarization
ratio remained minimal as FCDU loans only accounted
for 2.4 percent (down from 3.1 percent a year ago)
of the total loan portfolio. Including other foreign
currency loans such as those booked under regular
books and foreign offices, the ratio is still below five
percent at 2.7 percent (down from 3.6 percent).
These were channeled mostly to manufacturing (25.5
percent), utilities (20.0 percent) and trade-related
sectors (13.7 percent). Except for manufacturing
sector which posted a 0.5 percent reduction in loan
intake, the latter two sectors registered respective
robust expansions of 32.1 percent and 64.6 percent.
Loans to non-residents rose by 23.9 percent to
US$667.0 million from US$538.3 million a year
ago but their proportion to the FCDU total loan
portfolio remained relatively small at 5.6 percent.
As to maturity, the bulk of these loans at 40.8 percent
(dislodging loans with short-term maturity) were
long-term, up from 32.1 percent a year ago. Improved
macroeconomic conditions has significantly affected
the maturity profile of FCDU loans as it shifted to
longer-term from short-term during the review period
on perception of lower foreign exchange and interest
rate risks.
Asset quality of FCDU loans remained generally ideal
for the first semester of 2013 as the non-performing
loan ratio further improved to 0.1 percent from 0.4
percent a year ago.
30
Funding remained stable
with strong deposit base
and liquidity
Deposit liabilities still funded the majority of total
resources at 76.5 percent share ($25.6 billion), down
from 78.9 percent ($25.8 billion) a year ago (Figure
53). This was followed by bills payable at 10.3 percent
($3.4 billion) up from 7.5 percent ($2.5 billion), bonds
payable,net at 4.2 percent share ($1.4 billion), down
from 4.4 percent share ($1.4 billion), due to head
office/branches/agencies, net at 5.0 percent share
($1.7 billion), up from 3.4 percent share ($1.1 billion),
capital accounts at 1.3 percent share ($0.4 billion),
down from 3.3 percent share ($1.1 billion), and other
liabilities at 2.8 percent share ($0.9 billion), up from
2.5 percent share ($0.8 billion).
Figure 53. FCDU Funding Mix
For End-Periods Indicated
June 2012 June 2013
$32.6 billion $33.5 billion
2012
June
2013
Deposit Liabilities 78.9%
7.5%
76.5%
10.3%
Bills Payable
Bond Payable, net 4.4% 4.2%
Due to HO/Br./Agencies/FCDU/RBU, net
Capital Accounts
3.4%
3.3%
5.0%
1.2%
Other Liabilities
2.5% 2.8%
Resident depositors accounted for 97.7 percent
share of total deposit liabilities and the remaining
2.3 percent share was sourced from non-resident
depositors. Deposits from residents went down by
0.8 percent to $25.0 billion from $25.3 billion while
deposits from non-residents expanded by 13.9
percent (but the volume barely moved at $0.5 billion).
The liquid assets-to-deposits ratio (inclusive of ROP
holdings) widened to 80.0 percent from 79.9 percent
last year. However, liquid assets-to-deposit ratio
(exclusive of ROP holdings) softened to 49.7 percent
from 51.5 percent a year ago. Both ratios though were
still above the 30 percent liquidity cover requirement
on all foreign exchange liabilities. This developed
despite the decrease in liquid assets (composed of
cash and due from banks plus financial assets other
than loans, net) by 0.4 percent to $20.5 billion, slower
than the 0.5 percent decrease in deposit liabilities to
$25.6 billion.