The evidence of modern portfolio theory on loan portfolio of Philippine Stock Exchange listed banks

• Main Authors: Banez, Francesca Joyce P., Gomez, Maria Asuncion F., Lim, Karen Dixie N., Santos, Gizelle Anne J.
• Format: text
• Language: English
• Published: Animo Repository 2014
• Subjects: Bank loans > Philippines; Banks and banking > Philippines; Stocks > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18505
• Institution: De La Salle University

This study investigates whether there is evidence of the modern portfolio theory (MPT) on loan portfolio of Philippine Stock Exchange (PSE) listed banks. To be able to determine if there is evidence of MPT in banks, the study examines the loan portfolio mix of a bank and how it affects the profitability and credit risk level. The indicators of bank profitability and credit risk level are net interest income ratio and non-performing loans ratio, respectively. The loan mix is composed of loans to five sectors: manufacturing real estate, renting, and business services financial intermediaries wholesale and retail trade and agriculture, hunting and forestry. The study uses the financial statements of PSE listed banks for net interest income form 1999 to 2013 and non-performing loans from 2002-2013. The results of this study suggests that banks prefer to specialize their loan portfolio rather than using diversification. Therefore, this study concluded that there is no evidence of MPT on the loan portfolios of the PSE listed banks.