Margins of big Philippine banks widen in H1

On the other hand, NIMs of mid-sized players shrank.

The big three Philippine banks reported higher net interest margins (NIMs) in the first half of the year compared to the first six months of 2018, which effectively boosted net interest income, according to Fitch Ratings.

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Unlike big banks, the margins of mid-sized players like China Bank, Philipine National Bank and RCBC generally compressed, as steeper funding costs outweighed asset yield expansion.

"We believe this trend highlights the differences in the banks’ franchises within a highly competitive banking environment, where 46 universal and commercial banks vied for market share as of July 2019," Tamma Febrian, analyst at Fitch Ratings, said in a report.  

The shift towards higher-margin SME and consumer loans should provide a slight margin boost although the shift comes with enhanced credit risk.

Most banks also reported steady profitability regardless of NIM performance. "This was helped in some cases by a rebound in trading gains, which can be volatile. Fitch views recurring net interest and fee income as a better indication of a bank’s core earnings capacity, and the large banks continue to outperform their mid-sized peers on this measure," Febrian added.