PR Banking Industry Report Q1 2019

The local banking industry kicked off the year with a strong performance in the first quarter of 2019, posting an industry-wide Pre-Tax ROE of 14.9%, the highest level of profitability since 2005. Popular led the way with the highest level of profitability, achieving a Pre-Tax ROE of 21.0%, followed by Oriental (14.6%), FirstBank (10.9%), Santander (8.9%), and Scotia (6.3%). Furthermore, the capital position of the industry is exceedingly strong, posting a Tier 1 Risk-Based Capital Ratio of 21.8%, credit quality metrics continue to improve, registering a nonperforming loans ratio of 6.3%, deposits continue to surge, and the industry-wide credit portfolio is stable. Local banks, which have learned to effectively navigate through turbulent economic waters, are well positioned to seize opportunities during the post-disaster reconstruction period. The pace of disbursements of the $45 – $50 billion in federal disaster relief funds which have been allocated thus far has been very slow, resulting in a lackluster effect on the local economy. In this issue, we review the latest trends of loan originations and outstanding credit portfolio, both in terms of growth and loan type mix. The mortgage lending business has reduced significantly and is likely to continue this downward trend given demographic changes, lower rates of household formation, and higher interest rates. As a result, banks may have to rethink their mortgage business going forward, including their mortgage servicing business. On the other hand, the consumer and commercial loan segments may help compensate for the drop in mortgage activity given the most recent consumption and economic activity indicators.