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Banks are believed to  instrumental to economic growth because it provides the financial backbone needed to spur economic development through business creation and expansion. A healthy and resilient banking sector signals economic growth and development that is sustainable. The efficient transfer of funds from those that has surplus of them towards those that need them has been made possible due to the intermediation of banks. In the Philippines, banking formally started in 1851 with the establishment of the Bank of the Philippine Islands, which up to this day, stands to be one of the country’s biggest and most stable universal bank. This study analyzes how universal banks grew over the years, and determines whether a correlation exists between universal bank growth and economic growth, using the variable of GDP growth rate as proxy for economic growth. The study showed that at the most recent periods, universal banks’ ROE and ROA are negatively correlated with GDP growth rate.   Key words: Universal banks, History of banking, Economic growth of the Philippines, GDP growth rate

Universal banks combine commercial loan services and public deposit functions with investment, and other services such as home and auto financing, mutual funds, pension and insurance to name a few. The importance of universal banks have been recognized in emerging economies, and its growth spur economic growth and development of many countries in the world. Most universal banks are listed in stock exchanges, and as financial intermediaries, not only these banks expand their already wide portfolios but they allow more global investors into the fold, almost like a foreign direct investor, the difference only is, the investor don’t have to leave the home country. Since these banks are considered to be among the key players in stock markets, and this study seeks to understand what factors drive their performance in stock exchange so that global investors be aided in making investment decisions on universal banks.

Universal banks are important economic drivers in the Philippines since they provide the financial backbone for businesses and investments. Universal banks comprise 90% of the country’s banking system resources. Eleven [11] of the twenty-one [21] universal banks in the country are listed in the Philippine Stock Exchange, and these banks are the top universal banks based on capitalization. Price to Earnings Ratio [PER] is a commonly utilized investment assessment tool and this ratio indicates how much investors are willing to pay for a stock and is calculated as the ratio of the stock price over earnings per share. Since the stock price is dictated by the stock market, this paper seeks to determine if the P/E ratio of universal banks in the Philippines is correlated to its stock returns, the implication of which is how to form an appropriate balance between stock price volatility and banks’ valuation. The paper uses panel data of the 11 listed universal banks from 2010 to 2018, using Pearson Correlation. The study resulted in a generally weak correlation, however, there were banks that exhibited strong, positive, significant correlation.

Price-Earning Ratio or P/E Multiple is a widely used, straightforward investment assessment tool in developed countries. However, the method has not been utilized as much in stock market performance analysis in developing countries such as the Philippines. Using the top ten universal banks in the country, this paper utilized Price-Earnings Ratio [PER] as valuation tool and dependent variable, and sought to determine its value drivers. Used as independent variables are macroeconomic variables gross domestic product [GDP] growth rate, inflation rate, annual interest rate; stock market index Philippine Stock Exchange [PSEi]; and firm-specific variables return on equity [ROE], growth rate of ROE, growth rate of earnings per share, dividend payout ratio [DPO, growth rate of income, and price-book value [PBV] ratio. Results showed that among the independent variables, ROE, PBV ratio, and PSE index are statistically significant. The model’s (R2) is 63.7%, which is a fairly good fit.
  

This paper examines vast literature covering bank valuation practices, frameworks, and various factors that impact bank valuation. Researches on bank valuation covering the last 10 [ten] years were made, and there appear to have a certain level of conservatism on how to measure value of banks. This could be due to the recent global financial crisis, and what is common among the studies was, discourage banks from taking on additional risks. Different factors impact bank valuation and it depends on country and economic circumstances, including banking regulations and internal governance. Various bank valuation frameworks were also added from extensive researches gathered. The literature review also identified nine [9] variables that impact bank valuation, seven [7] of which are bank-specific attributes, one [1] is regulation related, and one [1] is macroeconomic. Future researches may use these variables and validate significance using statistical methods.