Byline: LEE C. CHIPONGIAN

The local banking systems total resources last year amounted to P4.166 trillion, 1.7 percent higher from 2003s P3.810 trillion, the central bank said in a report.

According to a report by the Bangko Sentral ng Pilipinas "Economic and Financial Developments"

Of this amount, thrift banks contributed P3.761 trillion, higher from the previous tally of P3.426 trillion, while savings banks had total resources of P305 billion from P292 billion. Rural banks total resources in the meantime totalled P100 billion from P92 billion in 2003.

The BSPs push for industry consolidation had some success in 2004, with 893 financial institutions in operation as of December. The central bank said this "reflects the BSP efforts to further strengthen the banking system (and) encouraged banks to consolidate and close weak banks."

Standard & Poors Ratings Services earlier lauded the central bank efforts to improve the Philippine banking sectors bad asset disposal however proposed bills extending the deadline for perks eligibility under the Special Purpose Vehicle Act could delay bank assets sale.

At the moment, local banks are burdened with P601.5-billion worth of non-performing assets, and the BSP is helping the sector liquidate idle assets.

Overall S&P said the local banking sector is "stable." "(But) it could be headed for tougher times as the systems considerable bad debts weigh on asset quality."

S&P report said the countrys economic growth remains on track, but the Philippine banking system is "weakly capitalized by international standards, and remains saddled with bad debts. Any unexpected deterioration in economic and industry conditions could strain the system severely."

The credit rating review also said that another challenge facing Philippine banks is weak loan growth, due in part to the hesitance of banks to lend for fear of aggravating their asset quality, and as productive loan demand has been soft.