菲律宾银行业盈利能力分析及前景

1、1 introduction:in the moder n econo my, finance is the core of economy system, an dthe banking sector as a financial intermediary is the main center of the finance.sinee the financial reform from 1990s in philippines, the banking sector adopted a number of reform measures such as deregulatio n and i

2、n ter natio nalizati on of bank market.the liberalization of market access regulation induced the banks more competitive and efficient.in the 20th century, philippines economy was experiencing smooth and robust growth until the financial crisis at the end of 2008. because of the outbreak of finan ci

3、al crisis, the economic growth of philippi nes suffered sign ifica nt in fluence, which was 1.1% in 2009. as driving factor of philippines economic growth, banking also was severely affected by this cri引s. before and after the crisis, many performanee assessments have changed in philippines banking

4、sectors. after the asian financial crisis in 1997, philippines banksz total loans had exhibited a steady in creased, and this growi ng tendency was broke n because of the fin ancial crisis in 2008.there is an apparent decline in the profitability of banking (roaa, roae) in 2008, which are 0.68 and 6

5、.76, respectively. it worth no ting that the non-performing loans rate continued to decline, even in 2008, it was 5.5% which was significantly lower than 7.23% in 2007.during the period of crisis in 2008, the total loans and profitability of philippines banks experieneed a brief decline and thenetur

6、ned to normality. on the other hand, the ope rational risk of banks ten ded to conti nuously decrease after the crisis.lt is reas on able to suppose that the fin ancial crisis would have some impacts on the determinants of banks profitability in philippines. therefore, this paper aims to analyzethe

7、un derlying in ter nal and exter nal determina nts that in flue nee profits of banks, and help regulatory authorities to make planning and policy after the financial crisis.this paper is structured as follows. the next section provides the previous literatures, followed by a section describe the dat

8、a and methodology. results section presents the empirical findings and conclusion and policy suggestion to authorities are discussed in the last section.2. literature review:up to date, there are limited studies that examine the determinants of bank performanee in philippines after the financial cri

9、sis in 2008, although there are some studies focused on the discussion of their performanee before and after the asian financial crisis.unite and sullivan (2003) examined the impacts of the relaxation of bank market access rule in philippines commercial banks. the result indicated that the entry of

10、foreig n in vestors into domestic banks would in crease ban ksz operati ng costs and reduce the nonin terest in come.the determinants of philippines banks performanee during 1990-2005 were examined by sufian and chong (2008). the results indicated that finandal variables are related to bank profitab

11、ility, while the external factors were found to have no significant impact on the performanee of philippines banks. they also found that the profitability, efficiency and competitiveness were important for the sustainable development of philippines banks.lee (2012) constructed a multivariate panel r

12、egression model to compare the un derlyi ng factors betwee n regi onal and national banks that in flue need banks' profits in korea from 1994 to 2008. the results indicated that regional banks should diversify and enhance the revenue and management ability to prevent negative effects of external

13、 shocks, for instance, financial crisis, because regional banks were more likely to be in flue need by exter nal shocks tha n n atio nal ban ks.the factors of banksz productivity after asian financial crisis during the period of 1998 to 2008 in philippines was examined by suifan (2012). he found tha

14、t productive banks tended to be more profitable, while various bank structures ownership was found to have no impact on financial performance.variable selectionthe depende nt variable is a measure of bank profitability. in gen era i, bank performanee is measured by the return on average assets which

15、 is pre-tax profit divided by average total assets (roaa). i employ two categories determinants which are in ter nal and exter nal factors as expla natory variables.table 1 lists the variables used to measure bank performanee and its determinants.1) log of total assets (lta). it is a proxy to measur

16、e the economies or disec ono miesof scale in banking in dustry. eiche ngree n and gibs on (2001) found that there is a certain ceiling on the effect of increasing bank's asset on its profitability (roaa).2) cost to in come ratio (cti). it is used to measure the operati ng cost of banks and its e

17、fficient management. it is expected that higher operating cost will lead to lower profitability.3) equity to total assets ratio (eta). in this study, it is used as a measure of banks financial leverage. it is expected that bank with lowerequity to total assets ratio will need higher external borrowi

18、ng, therefore lower bank profits.4) loan to assets ratio (nlta). since the main function of banks are financial in termediaries, bank ear nings are mainly from in terest in come which gen erates from loa ns. the more deposits are con verted into loa ns, the higher profits and interest margin.5) loan

19、 loss reserve to gross loans ratio (llrgl). it is used to measure bank asset quality. loa ns are the highest risk and least liquid assets for ban ks. in order to have higher loato-assets ratio, bank may have higher risk to go ban krupt. thus, the ratio of loa n loss reserve-to-gross loa ns is in elu

20、ded to evaluate the bank risk.6) gross domestic product growth (gdpgr). this variable is calculated as the annual % cha nge of the gdp. it is the most comm on economic in dicator variable that used to measure the economic activity within a country. in a favorable economic circumsta nee, the dema nd

21、for loa ns in creases, thus increasing bank earnings.7) stock market capitalization to total assets of the banks ratio (macpta). since corporations can either finance funds from bank or stock market, there are substitutive and complementary relations between these two markets. it is expected that th

22、is ratio is negatively related to bank profitability.8) total assets of the banks to gross domestic product ratio (tagdp). this variable is a measure of the importance of banking sector in philippines economy. demirguc-kunt and huizinga (1999) stated that other things constant, higher ratio of banki

23、ng assets to gross domestic product lead to smaller margins and lower profits.table 1 descriptive of the variables used in the regression models.variablehypothesized descriptionrelationship withprofitabilitydependentroaathe return on average total assets of the bank in year t.naindependent internal

24、factorsutathe natural logarithm of the accounting value of the bank's total asset in year t.+/-cticost to in come ratio. a measure of efficie ncy of management of bank.etaa measure of capital adequacy and financial leverage of bank, calculated as equity to total assets.+/-nltacalculated as loans

25、 to assets and provides information on the bank earnings.llrgla measure of bank assets quality and risk, calculated as loan loss reserve to gross loans.external factorsgdpgrthe annual change in the gdp.+macptathe ratio of stock market capitalization. it is used as a proxy of financial developmenttag

26、dpthe variable serves to measure the importanee of banking sector in the econo my, calculated as total bank assets to gdp+source: the data for in ter nal variables are sourcedfrom ban kscope databases. the data for the external variables are acquired from world bank databases.data and methodologydat

27、athis paper uses armual bank level accounting dataand banking sector concerttration from bankscope database for the period of 20102013, while macroeconomic data such as gdp, gdp growth and market capitalization were sourced from world bank database. in order to be selected into the sample,banks shou

28、ld meet two criteria. first, they should be commercial banks. second they should have yearly accounting statements over the period of 2010-2013. due to these two conditions, a balaneed panel data of 18 commercial banks over the period 2010 to 2013 are in eluded, the nu mber of ban k-year observati o

29、ns are 72.model formulationto exami ne the relati on ship betwee n bank profitability and ban ks' specific characteristics and external factors described earlier; the following regression equation is estimated:yit = fioit + rditxdit + £(1)where i refer to an in dividual bank，t refers to yea

30、r; kt refers to the return on average assets (roaa); xmreprese nts the in ter nal factors of in dividual bank and prefers external factors of in dividual ban k;poitis a con sta nt, and cis an error term. the model (1) is estimated thro ugh ran dom effects regressi on .the least square method is appl

31、ied to a random effects model. to control the cross-section heteroscedasticity, white's transformation is utilized to calculate the standard errors.the opport unity of using a ran dom effects model rather tha n a fixed effects model is based on hausman test.resultsthis section exhibited the empi

32、ricalfindings of the regression. table 2 presents the results of the regressions. in order to con serve space, the full regressi on results are not prese nted in the paper. the first colu rrm shows the results whe n only in ter nal variables are in eluded while the sec ond reports whe n macroec onom

33、ic in dicators are con sidered. whe n exter nal variables are in eluded into the equatio r the coefficie nts and significanee of the variables are remaining stable. the explanatory power of the models is also slightly different with the introducing of the external factors.table 2dependent variable r

34、oaaadependent variable roaablta03069 (0.038)*-0.3818 (0.020)*cti-0.0406 (0.000)*-0.0432 (0.000)*eta0.0355 (0.120)0.0206 (0.420)nlta0 1002 (0.439)0.0069 (0.599)llrgl-0.0233 (0l46)-0.0232 (0 151)gdpgr0.0575 (0.338)macpta07252 (0.216)tagdp0.3209 (0.713)_cons7.14927.6597adjusted r20.43410.4439breusch-pa

35、gan test46.6447.65prob (f statistic)000010.0008n7272t statistics in parenthesesp v 0.05f< o.olr p v 0.001.concerning the impact of bank size, the relation is negative and significant with bank profitability in philippines. the negative relationship implies that larger banks appear to have lower p

36、rofitability. this is consistent with previous studies (pasiouras & kosmidou, 2007)and indicatedthat exist economies of scale for smaller banks and diseconomies of scale for larger banks. lee (2012) speculated that diversification effects which larger banks have better risk-diversified assets th

37、an smaller banks might offset the effect of economies of scale.as expected, the ratio cost to in come ratio is n egatively related to bank profitability and is statically significant at the one percent level in the regression models. it implies that other things constant bank with higher operating c

38、osts would have lower performanee. pasiouras and kosmidou (2007) also found poor expanses man ageme nt may con tribute to poor profitability of ban ks. since the philippi nes banks were affected by financial crisis in 2008, dacanay (2007) analyzed another pote ntial explanatlo n that exter nal shock

39、smay in flue nee banks measured efficie nt management. kwan (2006) also suggested thatbecause the financial crisis cause rapid decli ne of loa n dema nd, banks may not have the ability to adjust labor and capital inputs over a period of time.the ratio equity to assets exhibited a positively relation

40、 on philippines banks' performanee. it implies thatwell-capitalized banks have lower risks of going bankruptcy and lower costs of funding, therefore better performance. it should be mentioned that the effects of capital adequacy are insignificant for banks' perform a nee whe n macroec onomic

41、 and finan clal variables are in eluded or only bank specific indicators are considered. blum (1999) stated that the requirement of excessive capital adequacy may cause the reduction of bank's profits, and he further explained that the lower future profits may diminish the incentive of bank to a

42、void default. therefore, the reason why capital adequacy in philippines banks is not sign ifica ntly related to roaa is excessive cost to in come ratio might reduce their profits and incentive.as expected,the loan to total assets has a positive sign for the measure of bankearnings, since banks have

43、long relianee on earning profits from loansinterest in come. however; this variable is insign ifica nt with roaa. smith et.al (2003) poin ted out that fees in come such as electr onic funds tra nsfer fees and credit card fees have recently occupied a dominant position in the banks business strategie

44、s. canal (1993) also found that in come gen erated from new busi ness units have make a significant contribution on bank performance. thus, for banks to maintain competition in financial markets, managersmight start to expand product breadth on generating noninterest revenue，and cause loan to total

45、assets ratio is not significant to philippines bank performanee.the loan loss reserve is an indication of bank's assets quality and the level of credit risk. it represents bank's forecast of the bad loans in bank's assets portfolio over a period of time. in philippines, this ratio is neg

46、ativelyrelated to the profits of banks but not significant. it is consistent with the expectation that bad loans would reduce the bank's profitability.previous study (miller and noulas, 1997) also found that with the in crease of risky loa nsthe accumulation of bad loa ns would rise, therefore r

47、educe the bank's future performanee. as the scale of loan loss reserves follows the economic cycle, the loan loss ratios tend to decrease after the financial crisis in philippines banks. kosmidou (2008) pointed out that banks management could smooth out in come by using provisi on charges to red

48、uce variability of profits. similarly, man ageme nts also could overstate or un derestimate in come by using loan loss reserves. thus, the manipulation of bank earnings could lead the insign ifica nt relati on ship betwee n the loa n loss ratio and the philippi nes banks performa nee.the impacts of

49、macroeconomic indicators (gdp growth) are negatively related to bank profitability, while financial industry variables (stock market capitalization and importance of ban king sector) on roaa are positive.after the fin ancial crisis, philippines economy realized rapid recovery and sustained fast grow

50、th at 6% until now.many previous studies (neely and wheelock, 1997; kosmidou, 2008) found that gdp growth has a strong effect on bank profitability, but suifan (2009) claimed economic growth has a negative impact on malaysian bank performanee. however; in philippines, it should be mentioned that gdp

51、 growth is not significantly related to roaa.the study examined bynaceur (2003) argued that gdp growth rates have no effect on banksz performanee and interest margins in tunisian banks. the banks' assets to gdp is not significant related to roaa. it implies that the importanee of banking sector

52、in philippines economy has no significant impacts on banks perform a nee. referri ng to stock market capitalizatio n on bank performa nee, it is not significant related to roaa. it is consistent with the findings of sufian and chong (2008) who found that philippines stock market development does not

53、 provide substitution possibilities to borrowers.conclusion and policy suggestionthis paper seeks to analyze the factors including bank's management decisions and macroeconomic condition that affect the profitability of philippines commercial banks during the period of 2010-2013during the period

54、 of the study, the empirical findings indicate that bank size and efficient management have a significantly and negative impact on the performanee of banks in philippines. the capital adequacy and in terest in come are positively related to roaa, while the credit risk has a negative impact. on the o

55、ther hand, macroeconomic and financial structure indicators including gdp growth, market capitalization and banking sector development have not significantly explained the variations in the philippines banks performanee.the finding of this study could offer some suggestions to bank managers and regu

56、latory authorities.to sustain the development and improve the profitability ofphilippines banking industry, bank managements, as well as the regulatory authorities should focus on improving its scale efficiency and x efficiency. bank managements should find means to take full advantage of their reso

57、urces during the operatio n of the ban ks. because the inter est in come from loa ns is curre ntly the main source of profits of the banksz managers should enforce the system of risk management and control to reduce the ratio of bad assets. however;sinee interest in comes are easily affected bythe b

58、usi ness cycle and in terest rate move, banks should also reduce the depe ndency on traditi on al loa n busi ness, and in crease the proporti on of norrin terest in comes to seek new profit growth point in the future.referenceblum, j. (1999). do capital adequacy requireme nts reduce risks in banking?. journal of banking & finance, 23(5), pp.755-771.dacanay, s. (2007). profit and cost efficiency of philippine commercial banks under periods of liberalizatior crisis and consolidation. the business review, 7, pp.315-322 eiche ngree b. and gibs on, h. (2001). greek banking at