Total deposits accumulated by the local banking system rose by 13.4 percent to P2.9 trillion as of end October last year, indicating that deposit liabilities are still the industry's major source of funding.
Bank regulators said the industry's "inherent conservatism" and "domestic orientation" allowed the banking sector to weather the global turmoil while still growing its main source of financing.
Regulators said the local banking industry compared significantly better than other countries in the region where bad loans ratios are higher, outperformed only by countries whose governments spent billions to buy up their banks' bad loans.
According to the BSP, the increase in bank deposits was fueled mainly by the rise in demand and time deposits although the central bank said there was a decline in savings deposits, which accounted for almost half of the funding base.
The BSP said these numbers indicate that depositors still prefer the more traditional financial products and that banks get the bulk of their funds from accumulated savings. As savings rose, the BSP said the total resources of the banking system rose by 13.9 percent to P5.7 trillion as of end-October 2008 from the 2007 level of P5 trillion.
The increase was due mainly to the rise in the cash and loans accounts, with universal and commercial banks accounting for almost 90 percent of the total resources of the banking system.
"The Philippine banking industry continued to be stable, well capitalized, and highly liquid during the last quarter of the year," the BSP said in its quarterly inflation report. According to the BSP, the banking industry's inherent conservatism and the domestic orientation have helped keep Philippine banks' exposure to the global financial turmoil to a limited extent.
Moreover, the BSP said Philippine banks continue to be capitalized above the Bank for International Settlements (BIS) standard and the BSP regulatory requirement, with bank balance sheets at their strongest since the 1997 Asian financial crisis.
On the other hand, the BSP said the banking system's asset quality continued to improve as the non-performing loan (NPL) ratio eased further to 4.5 percent as of end-October 2008 compared to 5.7 percent a year ago.
The BSP said compared with other countries in the region, the Philippine banking system's NPL ratio was lower than Thailand's 6.1 percent but higher than Indonesia's 3.9 percent, Malaysia's 2.4 percent, and South Korea's 0.6 percent.
The lower NPL ratios in Malaysia and South Korea, however, resulted from the creation of publicly-owned asset management companies (AMCs), which purchased the bulk of their NPLs.
In contrast, the BSP said the Philippine banking industry managed to pare down its NPL ratio by selling off their bad loans to private asset managers with only minimal incentives and no cash assistance from the government.