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Financial Highlights 2016

Year 2016 was punctuated by numerous signs of disquiet in the areas of politics and economics. It started with the issues-filled Presidential election in the Philippines; was made more challenging by Brexit or Britain exiting from the European Union; and ended with much uncertainty after the US Presidential elections. The general environment was no different–global catastrophic events, which caused intensive damage to people’s lives and properties.     

In the local banking industry, Governor Amando M. Tetangco, Jr. of the Bangko Sentral ng Pilipinas reported that Philippine banks played a significant role in helping sustain the growth of our economy. Bank lending continued to expand in double-digit rates, and the banking sector thrived with the pace of the country’s economic growth. He also stated that, based on BSP’s stress tests, the banking industry can withstand extreme shocks in both credit and market risks. This is due to the various reforms being undertaken by BSP, as follows: (a) shift to risk-based supervisory framework; (b) setting of governance standards for the Board of Directors and bank Senior Management; and (c) amendment of the compliance framework, as well as several other reforms on risks related to credit, market, operations and IT management.

In the light of these reforms, the cost of regulatory compliance among banks has increased. Further, banks that were not able to cope with reforms and continuously experience deteriorating financial conditions - most of which are Rural and Cooperative Banks - were ordered to be closed.

Amidst all these, Metro South Cooperative Bank (MSCB) remains steadfast in fulfilling its vision to be the leading cooperative bank in the Philippines. Mindful that regulators, both domestic and internationally, are taking a broader view of the necessary foundations for a strong and resilient banking system, MSCB has strengthened its funding and liquidity positions. On December 2016, your Cooperative Bank amended its capitalization from an authorized capital of Six Hundred Twenty Five Million (P625.0M) to One Billion Two Hundred Million (P1.2B), for approval by the Bangko Sentral ng Pilipinas. 

Financial Conditions and Results of Operation:

For the year ended 2016, the Bank’s resources increased by 23.55% or P583.2M. The substantial increase was brought about by the following: Due from Local Banks, representing 65.89% (P324.0M), and Loan Portfolio accounting for 17.13% (P325.0M). The portfolio is 49% secured by either real estate, deposit hold-out, chattel, and/or surety fund. Liquidity ratio is at 35%, which is 8% higher than 2015 because some borrowers decided to defer availment of their approved loans in December.

The Bank’s lending growth is funded by deposits and bills payable, which contributed to the increase in total liabilities by 24.43% or P488.9M. This was due mainly to the increase in Deposit Liabilities and Bills Payable by 10.61% or P157.3M and 72.90% or P341.3M, respectively.

The Bank’s capital position remains to be strong at P438.00M representing an increase of P32.14M from 2015. Total equity likewise increased by P94.3M or 19.83%.

Membership slightly grew from 822 to 823 members.  There were three (3) additional primary cooperatives that applied for membership and their investments were temporarily classified as deposit for future subscription while waiting for the approval of the BSP on the amendment of the bank’s increase capitalization.

Net interest income increased from P88.7M to P96.2M, or by 8.45% compared to the previous year. This increase is attributable to the expansion of the loan portfolio during the reference year. Service charges likewise increased.  However, the increase in net interest income and service charges was reduced by the following: (1) rise in impairment loss attributable to the growth in the loan portfolio; and (2) hike in interest expense on deposit, resulting in the decrease in net income to P16.6M in 2016 or by P12.3M from 2015 figures.

Challenges:

MSCB has strategic plans in place in order to face the following 2017 challenges:

  1. Tight regulatory requirements imposed on the operation of banks by the Bangko Sentral ng Pilipinas (BSP)
  1. Full implementation of BSP Circular No. 855 

This requires well-defined credit granting criteria and underwriting standards. Under this circular, the bank will have to provide 1% general loan loss provision once a loan is released.  On a monthly basis, banks are required to prepare impairment testing of all accounts, to ensure that allowances for credit losses are adequate and approximates the expected losses in its loan portfolio. Once a provision has been set up, this can no longer be reverted to income.

  1. BSP Circular No. 941, Amendments to the Regulation of Past Due and Non-Performing Loans, full implementation is by January 2017.

In this circular, account that miss paying their amortization on due date, are no longer classified as arrears, hence, the total outstanding loan balance shall be considered as past due and subject to a corresponding loan loss provisioning.

  1. Implementation of the Philippine Financial Reporting Standard 9 (PFRS 9) starting January 2, 2018.

This new standard will affect the allowance for impairment including classification and measurement of financial instruments.

MSCB is going to -

  1. Impose a stringent loan underwriting process based on new BSP regulations.
  2. Set a tolerable amount for clean loans.
  3. Enhance review of loans after release to ensure that the loan was used for the purpose it was applied for.
  4. Implement our new strategy, Ownership Pledge Program (OPP) strategy anchored with ownership banking based on the commitment of members.
  5. Pursue merger/consolidation with cooperative banks, 1 CB by 2020.

As your bank endeavors to contribute to the future of the cooperative sector, we are continually grateful to have you, our member-shareholders, as our partners in this journey.  We truly value the investment and trust that each one of you has put in.  To our other valued clients, thank you also for your continued patronage of, and confidence in the bank. To all the members of the Board of Directors, as well as all the other elected and appointed officers, thank you for your dedication, commitment, and guidance.  To the officers and staff of the Bank who commit to better everyday for the sake of those they serve, thank you.

Above all, thank You, Lord, for the opportunity to be of service to others. Thank You, for the wisdom and the knowledge in everything that we do and most of all for blessing the work that comes out of our hands.