Bangko Sentral ng Pilipinas (BSP) governor Amando Tetangco said bank incomes were likely to soften this year as credit tightens and trading losses mount.

He assured, however, that the sector would hold steady even with lower profits.

"There will be some dent in the profitability of banks this year," Tetangco said, adding that losses from trading activities, previously a major profit contributor in past years, are to be expected.

Lending growth, too, would be weaker in 2009, Tetangco noted. He attributed this to the combined effects of the global economic slowdown and the risk-aversion of banks at a time of financial upheaval.

Banks are expected to implement tighter credit standards as part of efforts to reduce or contain risks.

Slowdown would likely be pronounced as "base effect" or the high growth rates in 2008, which went well into the 20's, will be more difficult to match this time around.

In 2008, BSP had projected a 10-percent growth in bank lending but actual growth rates have been faster than expected, with overall bank lending expanding dramatically in the first nine months of the year alone.

BSP recorded a 24.8 percent annual increase in bank lending in September, led again by the wholesale and retail trade as well as transportation, storage and communications.

Elsewhere in the world, credit conditions have been shutting down in the wake of the financial crisis in Europe and the US. But central bank officials here said the phenomenon been largely muted so far in the Philippines, with bank lending still growing at double-digit levels.

In 2009, however, Tetangco said the effects of the crisis would be more evident, prompting monetary officials to ease up in order to spur lending to critical economic activities.

BSP's latest Philippine Financial System Report covering the first semester of 2008 said the annualized earning asset yield stood at 7.7 percent, 50 basis points lower than the 8.2 percent posted in the same period last year.

The BSP reported that other profitability ratios also exhibited similar declines: the annualized net interest margin at 4.2 percent (from 4.4 percent), the annualized return on assets at 1.1 percent (from 1.3 percent) and annualized return on equity at 9.6 percent (from 11.7 percent).

But Tetangco expressed optimism that there was still an upside to consumption growth and this would help keep bank lending on a growth trajectory.

"Steady remittances and actual and expected lower prices of goods would continue to buoy consumption and thereby provide support to credit growth," he said.

"Given what is happening abroad you cannot discount that there can be a slight uptick in NPL in the near term," Tetangco said, "This is especially true when the effects of the recession in major economies really and truly starts to affect us."

Tetangco said the BSP considered this to be temporary and if it results in an increase in bad assets, the increase would be "slight and manageable."

"We don't foresee a substantial increase in bad assets," Tetangco said.