A study on the impact of capital structure on the performance of commercial banks in the Philippines as measured by non-performing loans ratio and loan growth for the period 2000-2006

• Main Authors: Cajefe, Ricky, Garcia, Juan Carlos, Romero, Nikki Zandra, Rubio, Christine Angela
• Format: text
• Language: English
• Published: Animo Repository 2008
• Subjects: Banks and banking > Philippines; Loans > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18444
• Institution: De La Salle University

The Philippine financial institutions are currently experiencing rapid changes due to the modernization of this industry. Trends such as mergers and acquisitions, creation of innovative financial products and services, and the evolution of firm structure hastened the need for constant investigation of the operations of these institutions. For this paper, the proponents explored the capital structure of eight (8) commercial banks for the period 2000-2006. It was only in 1999 when the Bangko Sentral ng Pilipinas (BSP) mandated the disclosure of the non-performing loans of banks in their financial statements. Due to the special treatment for this account, the proponents of this paper used this variable divided by loan disbursements to get the non-performing ratio as one of the primary indicators of bank performance. In addition, the researchers also explored the effects of the growth in total amount of loans (LGR). The proponent used the Prais-Winsten regression with panels corrected standard errors (PCSEs) in analyzing the data. This method corrects the heterosdascity and first-order autocorrelation among the variables in the study. The regression results showed that the LGR has a positive effect on the performance of the selected commercial banks in the Philippines. This can mean that the higher the leverage of banks, the greater the amount of funds that can be provided to the clients of the bank. As for the NPR, most independent variables showed insignificant results to the study, which means that it does not affect the performance of commercial banks. The proponents of this study concluded that the short-term deposits of commercial bansk are vital to the operations of the banks. This variable also supports short-term loans which most banks are more inclined to lend to its clients. It can also be noted that since NPR is insignificant to the study, this may indicate that bank are finding ways to decrease their non-performing loans.