Challenging mental health Stigma in schools: Ethical and institutional responsibilities

 MANILYN A. GALAMAY

Divine Word College of Laoag

Abstract

Mental health support in the workplace is not just an avenue to protect an employee’s well-being, but an ethical responsibility governed by the agencies’ policies, rules, and procedures. The organization has a moral duty to safeguard the dignity and morale of its employees; thus providing a safe environment for everyone. It is the utmost moral responsibility of the organization to recognize the holistic well-being of each employee, including social, physical, emotional, and psychological needs.

Keywords:

Mental health stigma; public schools; teacher well-being; learner well-being; workplace mental health

Introduction

Mental health support is a crucial need in the education system, as there is an increasing number of depression cases and suicide among teachers and learners due to the overwhelming pressures of academic requirements and social media influence.

For teachers, these pressures include the lack of protection for teachers with regard to the implementation and representation of the Child Protection Policy, wherein misconduct or misbehaviors of learners are highly tolerated, as such protection inhibits teachers for some disciplinary measures due to fear of reprimandation from the agency. Teachers are expected to exercise maximum tolerance at all costs; managing heavy teaching loads, mismatched education and subject, emotional labor, and constant accountability in and out of the school.

In the Philippine context, despite the passage of the Mental Health Act, mental health support systems in public schools remain weak due to the intensified demands of the system for performance evaluation, promotion requirements, redundancy of paperwork, large class size, and learners’ misconduct. This article explores the systemic factors contributing to inadequate mental health support and examines their implications for teachers, learners, and the education system as a whole (Malolos et al 2021, Gonzalo & Alibudbud, 2024).

Weak Mental Health Support in the Public-School Environment

Mental health support systems play a vital role in achieving educational and social goals.  It is a critical factor influencing learning outcomes as teaching is a high-stress responsibility due to heavy workloads, diverse learners’ needs, different social backgrounds, changing curriculum requirements, and the curriculum itself, and having extensive administrative responsibilities (Wiedermann et al 2023)

 One of the primary challenges in public schools is the lack of mental health infrastructure. Many schools do not have access to licensed psychologists, limiting their ability to provide consistent and individualized support (Wachutka et al, 2024; Brown & Carrington, 2025)

Teacher Workload and Psychological Stress

Teachers in public schools are burdened with heavy teaching loads and extensive administrative tasks. While it is essential to prepare lesson plans and instructional materials, there are different administrative tasks aside from these, such as accomplishing redundant paperwork, documentation, and a lot more (Rouch, 2019).  

While these demands contribute to chronic stress, burnout, and emotional fatigue, teachers are left with no choice but to keep up to the demands because the job is our bread and butter. No matter how much we wanted to vent out our frustration, we remain in the core of our oath as teachers.

Learner Mental Health Needs and Limited Access to Services

In today’s generation, learners face heightened mental health challenges. Many exhibit weaker tolerance to stress and are more easily pressured by academic demands, social expectations, and extracurricular obligations. The pervasive influence of social media exposes them to a wide array of information and behaviors, some of which can normalize harmful practices such as bullying, cybercrime, and even self-harm. Exposure to these influences often blurs their understanding of acceptable social behavior and can exacerbate anxiety, depression, and emotional instability (Claney, 2023; Barbayannis et al, 2022).

Cultural Stigma and Barriers to Mental Health Support in Schools

Even though there are policies to support mental health, they are not widely put into practice in schools, mostly because of cultural stigma. Many people wrongly see mental health as a sign of illness or weakness, which leads to shame and makes teachers and students less likely to talk about their emotional or psychological challenges. Social and peer pressures also encourage people to hide their struggles, perpetuating the belief that asking for help means one is not strong enough, rather than recognizing it as a genuine need for support (Ahad et al., 2023; Wiederman et al., 2023).

In many cultures, teachers are expected to remain strong and calm at all times. They are often seen as the primary support for students and are expected to prioritize students’ needs over their own. Because of this, teachers may hide their own stress, anxiety, or emotional problems so they can keep doing their jobs. This pressure can harm their mental health and make it harder for them to fully support and guide their students (Greenberg et al 2016)

These issues highlight the critical need for systemic interventions, including awareness campaigns, mental health literacy programs, and institutionalized support systems that normalize seeking help and reduce stigma. Both teachers and learners remain vulnerable to the negative consequences of unaddressed mental health issues. Thus, providing social and psychological support should be prioritized to sustain a conducive learning environment.

Conclusion

The mental health and well-being of teachers and learners are closely shaped by the school environment, workplace culture, and societal expectations. Teachers face heavy workloads, administrative demands, and cultural pressures, often setting aside personal struggles to prioritize learners’ needs. Learners, in turn, are increasingly exposed to stress from academic pressure, social media, and peer influence, which can normalize harmful behaviors such as bullying, cybercrimes, and self-harm. Although policies supporting mental health exist, their implementation is often hindered by stigma, limited resources, and gaps in systemic support.

Addressing these challenges requires a comprehensive and integrated approach that combines ethical responsibility with practical interventions. Teachers, learners, parents, school heads, stakeholders, and the Department of Education all share a role in fostering mental well-being. Schools must provide structured support through counseling, wellness programs, and mental health literacy, while aligning performance expectations with realistic workloads. By integrating ethical commitment, systemic support, and evidence-based interventions, public schools can safeguard the mental health of educators and learners, enhance teaching and learning outcomes, and create a resilient, supportive educational environment.

References

had, A. A., Sanchez-Gonzalez, M., & Junquera, P. (2023). Understanding and Addressing Mental Health Stigma Across Cultures for Improving Psychiatric Care: A Narrative Review. Cureus, 15(5), e39549. https://doi.org/10.7759/cureus.39549

Barbayannis G, Bandari M, Zheng X, Baquerizo H, Pecor KW and Ming X (2022) Academic Stress and Mental Well-Being in College Students: Correlations, Affected Groups, and COVID-19. Frontiers in Psychology, 13, 886344. https://doi.org/10.3389/fpsyg.2022.886344

Brown, C., & Carrington, N. K. (2025). Increasing access to school-based mental health services for youth subsequent to the COVID-19 pandemic. Health affairs scholar, 3(4), qxaf073. https://doi.org/10.1093/haschl/qxaf073

Claney, C. (2023). Exploring the impact of school stress on teen’s emotional well-being. Relational Psych. https://www.relationalpsych.group/articles/exploring-the-impact-of-school-stress-on-teens-emotional-well-being

Gonzalo RP and Alibudbud R (2024) Advancing education-based mental health in low-resource settings during health crises: the mental health initiative of the University of the Philippines during the COVID-19 pandemic. Frontiers in Education, 9, 1428237. https://doi.org/10.3389/feduc.2024.1428237

Greenberg, M. T., Brown, J. L., & Abenavoli, R. M. (2016). Teacher stress and health effects on teachers, students, and schools. Edna Bennett Pierce Prevention Research Center, Pennsylvania State University, 1-12.

Malolos, G. Z. C., Baron, M. B. C., Apat, F. A. J., Sagsagat, H. A. A., Pasco, P. B. M., Aportadera, E. T. C. L., Tan, R. J. D., Gacutno-Evardone, A. J., & Lucero-Prisno Iii, D. E. (2021). Mental health and well-being of children in the Philippine setting during the COVID-19 pandemic. Health promotion perspectives, 11(3), 267–270. https://doi.org/10.34172/hpp.2021.34

Rouch, D.A. (2019). Education staff work activities and excessive workloads: where to now for schools, vocational education institutions and universities? Clarendon Policy & Strategy Group Working Paper Series, 9, 2019

Wachutka, K., Echevarria, M., & Walsh, J. (2025). Youth Mental Health First Aid (YMHFA): a change initiative in an underresourced school. The Journal of School Nursing, 41(5), 632-641.

Wiedermann, C. J., Barbieri, V., Plagg, B., Marino, P., Piccoliori, G., & Engl, A. (2023). Fortifying the Foundations: A Comprehensive Approach to Enhancing Mental Health Support in Educational Policies Amidst Crises. Healthcare (Basel, Switzerland), 11(10), 1423. https://doi.org/10.3390/healthcare11101423

 

 

https://demolitionnutsgrease.com/q9h97sj5?key=23b279e99ed6a529a30f577cdce2aeb9

Workplace Discrimination: A Human-Centered Narrative on Organizational Fairness and Ethical Governance

 ARIEL R. ROSARIO

Divine Word College of Laoag

Abstract

The article draws from real experiences of workplace discrimination within the Department of Environment and Natural Resources (DENR) in Ilocos Norte. Having served 31 years in the agency, there are patterns of discrimination from age, gender, and connections that influence the promotion and training available. This comes from the silent expectation for senior employees to retire, to specific-gender tasks and favoritism, all reflecting how discrimination affects the agency’s work and function. Even with all the rules and ethics guidelines meant to protect the workforce, the cracks in the system let unfair practices pass unnoticed and still let discrimination take root, choosing who gets the opportunities and who does not. The article also recommends revisiting legal codes, ethical policies, standards, and work culture to promote workplace equality and better governance internally.

Keywords: workplace discrimination, ethics guideline, Department of Environment and Natural Resources(DENR), Ilocos Norte, governance, specific-gender tasks, age discrimination, gender discrimination, patterns of discrimination, Anti-Age Discrimination Act (RA 10911), field operations

Introduction

Workplace discrimination in the public sector isn't a topic that is openly talked about; it remains a whisper between the victims of the short end of the stick. A more than three (3) decades of working in the Department of Environment and Natural Resources (DENR) in Ilocos Norte, I have empirically witnessed that the discriminations that destroys the most are those that happens in our day-to-day work life. It's not just in a single policy, but in the higher management, boss's decisions, and the unspoken culture of tradition and hierarchy that determines who receives the training and who is set aside (Brillantes & Fernandez, 2011).

The very safeguards created by RA 10911 (Anti-Age Discrimination Act) and our own departmental ethics code have cracks, we hope for the best but are often met with the reality that tells a different story. The vision of the law promotes neutrality and equal opportunities regardless of age and gender, yet culture often demands differently, with hierarchies and personal interests having more weight than the rules (De Guzman & Reforma, 1993). Hopefully, sharing my journey from the field to the office, I want to bring to light how these discriminations affect individuals, hurting our morale and the very existence of the department and the public sector.

Age and Tenure: The Quiet Push Toward the Exit

A prime example of age discrimination involves a male senior colleague who had decades of experience in managing permitting and operations. Although he had competence and experience, the hiring of a young individual halted and isolated his role in the organization; prioritizing the training and experience of the younger staff became the goal of the department. Eventually, the male senior colleague resigned due to this treatment, which contradicts RA 10911, which prohibits age-based treatment in tasks and work. In practice, older employees often see younger staff prioritized for training and technical roles, while veterans are put aside. This creates insecurity and signals that loyalty and experience are disposable, harming the operations of the department (Rainey, 2014).

Gender Discrimination: The Restriction of Opportunities

Gender discrimination also shows through assumptions about physical and social roles. One female colleague, competent in data analysis and office work, was stuck to desk work, with constant rejection of field assignment requests to the office, on the reason that “the terrain is too difficult to navigate and endurance is needed.” Requests for technical training were either delayed, set aside, or denied until she mentioned the DENR’s ethics and anti-discrimination code during a team meeting, which caught everyone off guard. After a few weeks, she finally received assignments and fieldwork. Her approach shows that departmental equality depends not just on policy, but also on knowledge and enforcement of the discrimination policies and safeguards (Kim, 2010).

Localism and Favoritism: The Unspoken Biases

In addition to age and gender biases, localism, favoring staff from certain localities, creates further inequity. Staff without strong local ties may be overlooked regardless of merit and competency. Such biases betray trust, divide teams, and weaken objective decision-making in public service. If left unaddressed, these patterns become systemic, affecting both individual morale and departmental effectiveness (Nigro & Kellough, 2014).

Reinforcing Accountability: The Grievance System Experience

As complaints accumulated, I personally advocated for strengthening the grievance system. Previously, staff hesitated to speak up due to fear of retaliation or putting the spotlight over their heads. Over time, transparency and reliability in grievance handling reduced reported incidents, not because problems ceased, but because employees trusted that their concerns could be addressed without blowback. This aligns with governance, ethics, and corporate social responsibility principles emphasizing that effective governance requires accountability, ethical leadership, and a culture of fairness (OECD, 2017).

Conclusion

More than a decade in the Department of Environment and Natural Resources (DENR), Ilocos Norte has empirically shown that discrimination is often subtle, growing, and poisonous. All these affect the individuals, the department, and the public sector, turning a well-functioning engine into a broken system. And yet all things considered, fairness can be restored with perseverance and knowledge. Governance succeeds when leaders are just, policies reinforce justice, and employees, regardless of age, gender, or background, are treated fairly and with respect. Strong public service relies on these three pillars: leading with integrity, ensuring fairness, and perseverance.

References

Brillantes, A. B., Jr., & Fernandez, M. T. (2011). Good governance, reforms, and innovations in the Philippines. Public Administration and Development, 31(3), 240–251. https://doi.org/10.1002/pad.595

de Guzmán, R. P., & Reforma, M. A. (1993). Public administration in the Philippines: A reader. University of the Philippines Press. 

Kim, S. (2010). Public service motivation and organizational citizenship behavior in Korea. International Journal of Manpower, 31(1), 56–78. https://doi.org/10.1108/01437721011030520

Nigro, L. G., & Kellough, J. E. (2014). The new public personnel administration (7th ed.). Cengage Learning.

OECD. (2017). Public sector leadership for the 21st century. OECD Publishing. https://doi.org/10.1787/9789264271434-en

Rainey, H. G. (2014). Understanding and managing public organizations (5th ed.). Jossey-Bass.

  

https://demolitionnutsgrease.com/q9h97sj5?key=23b279e99ed6a529a30f577cdce2aeb9

Government Contractualization: Employment Opportunity or Exploitation?

 Jovelyn O. Guillermo

Divine Word College of Laoag

Abstract

Workers engaged under contractual, temporary, and other non-standard employment arrangements play a critical role in the operations of Philippine government agencies. Among these, Contract of Service (COS) and Job Order (JO) workers perform essential functions similar to those of regular employees, yet their employment status and benefits remain legally and practically distinct. Despite their contributions, these workers often lack job security, social protection, and access to the benefits enjoyed by regular government employees, leaving them vulnerable to exploitation.

The legal and policy framework governing COS and JO workers clarifies their status and limitations. Under CSC Memorandum Circular No. 40-98, workers under contracts of service and job orders are employed for short durations not exceeding six months on a daily or project basis. These arrangements cover lump-sum work or specific services where no formal employer–employee relationship exists. Although these workers are subject to oversight by the Commission on Audit (COA), they are not entitled to the same benefits and protections as regular government employees. Jurisprudence, including CSC Resolution No. 020790, confirms that job order workers are not considered government employees, and the services they render are not regarded as government service.

In response to the growing number of COS and JO workers and the associated issues of unequal benefits, lack of social protection, and unclear accountability, the Civil Service Commission (CSC), Commission on Audit (COA), and Department of Budget and Management (DBM) issued a joint circular in 2017. More recently, Joint Circular No. 1, series of 2025, provided clearer guidelines on the rights, benefits, and responsibilities of COS and JO workers, aiming to enhance transparency, accountability, and worker protection.

This article examines the working conditions of COS and JO workers in comparison with private sector employees, highlighting systemic challenges and recent policy reforms. By analyzing these issues, the study underscores the urgent need for reforms to ensure dignity, fairness, and security for non-standard government workers.

Keywords

Contractualization, Contract of Service, Job Order, Government Workers, Exploitation, Employment Benefits, Public Service

Introduction

Contract of Service (COS) and Job Order (JO) workers are the backbone of government operations, yet they remain among the most overlooked employees in the public sector. These workers perform essential tasks, observe office hours, report to supervisors, and deliver outputs critical to public service. Despite their indispensable contributions, they are routinely denied job security, benefits, and basic labor protections.

Originally intended as temporary arrangements, COS and JO positions have, in practice, become permanent roles. Policies of the Civil Service Commission (CSC), together with budgetary practices under the Department of Budget and Management, allow agencies to maintain a flexible workforce while avoiding obligations to these workers. This unequal treatment constitutes a systemic form of discrimination within government employment.

The scope of the issue was highlighted during the CSC’s 2026 budget briefing before the Senate Finance Committee. Senate Committee chair Sherwin Gatchalian revealed that over 900,000 government workers—nearly one in every ten employees—are either Job Order or Contract of Service personnel. To date, the Philippine civil service workforce exceeds 2 million, comprising 1,873,504 career professionals and 225,439 non-career professionals, including elected officials. Among them, 70% of career professionals work in national government agencies, while 20% serve in local government units (LGUs). Conversely, 63% of non-career professionals are employed in LGUs, and 25% in non-government agencies. (RG Cruz, 2025)

Gatchalian further noted that, while many permanent positions remain unfilled, professional services expenses have risen sharply, suggesting that agencies increasingly rely on Job Orders or Contracts of Service instead of filling permanent posts. This situation underscores the urgent need for labor reforms and stronger protections for this largely invisible workforce. (RG Cruz, 2025)

The Nature of Exploitation

COS and JO workers perform the same duties as regular government employees—they report daily, follow office rules, meet deadlines, and answer to supervisors—yet they are denied formal recognition and security. They can be terminated at any time without due process and are deprived of essential benefits such as leave credits, retirement plans, and protection during illness. This arrangement allows the government to reap the productivity and commitment of a permanent workforce while avoiding its obligations as an employer. Such systemic control without protection is not merely unfair—it is exploitation, turning dedicated public servants into a disposable workforce. The scale and persistence of this practice underscore the urgent need for policy reforms that ensure fair treatment, social protections, and recognition for those who sustain government operations.

Why the System Persists

The continuation of COS and JO arrangements is largely driven by convenience for government agencies. These arrangements allow agencies to bypass hiring restrictions and budget ceilings, a practice legitimized by regulatory definitions and gaps within Civil Service Commission policies. Critically, there are virtually no plantilla positions available for rank-and-file workers—most regular positions exist only at the managerial or head level. This leaves essential operational roles filled by temporary workers on short-term contracts. Coupled with limited budgets, agencies often prioritize short-term professional services contracts over investing in human capital, sometimes allocating funds to questionable projects rather than addressing workforce needs. Consequently, COS and JO workers often remain on short-term contracts for five to fifteen years, repeatedly renewed without regularization or access to benefits and protections afforded to permanent employees. This perpetuates a cycle of instability and exploitation, allowing the government to maintain a flexible workforce at minimal cost while shifting the burden of job insecurity entirely onto the workers themselves.

Impact on Workers and Public Service

COS and JO workers face constant uncertainty, as they have no security of tenure and can be terminated at any time without due process, often under “endo” or coterminous arrangements tied to projects or funding cycles. This precarious situation prevents them from planning for the future or accessing social protection programs such as health benefits, retirement plans, and leave entitlements. The resulting stress, reduced productivity, and lower morale directly affect the quality and efficiency of public service. Moreover, the divide between permanent staff and contractual workers undermines teamwork, collaboration, and a sense of fairness within government offices. The reliance on temporary labor not only exploits workers but also weakens the institutional capacity of public agencies, exposing the systemic inequities and vulnerabilities embedded in the current employment framework.

The table below shows the updated benefits comparison of COS/JO based on Joint Circular No. 1, series of 2025 vs. Private Sector employees:

Benefit / Protection	Government COS/JO Workers (Under JC No. 1, 2025)	Private Sector Employees
Security of Tenure	Temporary contracts; not covered by Civil Service laws; no security of tenure	Regular employees have security of tenure; termination requires cause and due process
Leave Benefits	Not provided (no sick, vacation, maternity/paternity leave) as not covered by Civil Service law	Entitled to statutory leave benefits under the Labor Code
Retirement / Social Security	Contributions to social security programs (SSS, PhilHealth, Pag‑IBIG) may be provided through a premium up to 20% of wage/salary, where funded; still not credited as government service under Civil Service laws	Mandatory SSS, PhilHealth, and Pag‑IBIG contributions with full access to benefits,   including retirement, sickness, and death benefits
Health Insurance / PhilHealth	Agencies must ensure access to social security and healthcare, often via funded premiums up to 20% of pay	Employer‑paid PhilHealth contributions with full benefit access
Hazard Pay / Allowances	Not specifically mandated for COS/JO; overtime pay may be given, subject to availability of funds; outside typical allowances given to regular government employees	Entitled to hazard pay, night differential, overtime pay, and other allowances
Bonuses / Incentives	Generally not entitled to 13th-month pay, representation and transportation allowances, PERA, and other bonuses under JC No. 1	13th-month pay is mandatory; performance and productivity incentives may also apply
Pay Level	COS may be paid the prevailing market rate or equivalent government salary; JO workers receive a daily wage of comparable government positions, plus an optional premium of up to 20% depending on funds	Wages and salaries are determined by the employer with statutory minimums; a regular payroll structure
Job Security and Career Progression	No promotion/pension credit as government service; CCS, COA, DBM encourage agencies to consider absorption into plantilla positions where qualified	Opportunities for promotions, salary increments, training, and career advancement
Coverage under Civil Service Law	Not covered; services not creditable as government service (no Civil Service benefits)	Covered under Civil Service Law (public) or Labor Code (private)

This comparison highlights the inequality in benefits and protections between COS/JO workers and private sector employees, emphasizing the urgent need for reforms. While the government mandates that private sector employers provide these required benefits as per DOLE regulations, it paradoxically fails to ensure the same protections for its own workers. COS/JO employees, despite having rendered satisfactory service beyond the standard probationary period, are often denied these benefits on the grounds of not holding a regular position—effectively institutionalizing exploitation within the public sector.

Recent Policy Reforms

In Joint Circular No. 1, series of 2025, the Civil Service Commission (CSC), Commission on Audit (COA), and Department of Budget and Management (DBM) issued revised guidelines on the engagement of COS and JO workers. The reforms aim to regulate contractual employment, establish clearer standards, and limit the overreliance on short-term arrangements. Notably, the circular introduces a strict cap on the number of COS and JO hires, with no increases allowed in subsequent years, preventing agencies from using temporary contracts to indefinitely replace regular positions. It also mandates additional benefits for contractual workers, including a 20% premium to cover employer and employee contributions to SSS, PhilHealth, and Pag-IBIG, proper compensation for overtime work, reimbursement for travel expenses incurred in the performance of official duties, flexible work arrangements to support work-life balance, and opportunities for regular positions where applicable. Agencies are also directed to review staffing and consider qualified COS/JO workers for appointment to vacant permanent (plantilla) positions, subject to merit selection plans. Another possible approach to mitigate reliance on individual contracts is the adoption of institutional COS arrangements, where projects or offices hire contractual workers collectively, which can streamline hiring, ensure standardized benefits, and reduce administrative inefficiencies compared to multiple individual contracts. Furthermore, under the Government Optimization Act, agencies are required to factor their existing COS/JO workforce into long-term organizational restructuring to reduce "contractualization."

Conclusion

While the reforms introduce caps, additional benefits, opportunities for regularization, and planning measures, they cannot fully address the structural gaps that perpetuate insecurity, exploitation, and instability among contractual personnel. Until permanent positions are created and funded for rank-and-file roles, the reliance on COS and JO workers—and the inequities they face—will continue. At the core, COS and JO workers are human beings whose dignity must be respected. This article underscores that while government agencies may contract services under civil service rules, such authority must not be used to mistreat or mismanage these workers. Upholding their rights is essential—not only for justice—but for building a competent, fair, and effective public service.

References

CSC Memorandum Circular No. 17, series of 2002. CSC Resolution No. 020790. https://www.csguide.org/items/show/1125

CSC Memorandum Circular No. 40, series of 1998. Revised Omnibus Rules on Appointments and Other Personnel Actions. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://csc.gov.ph/phocadownload/userupload/irmo/mc/1998/mc40s1998.pdf

CSC-COA-DBM Joint Circular (JC) No. 1, s. 2017. Rules and Regulations Governing Contract of Service and Job Order Workers in the Government. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.dbm.gov.ph/wp-content/uploads/Issuances/2017/Joint%20Circular/CSC-COA-DBM%20JOINT%20CIRCULAR%20NO.%201%20(1).pdf

RA 12231 (2025) An Act Optimizing the National Government for Efficient Public Service Delivery. https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/2/99481

RG Cruz (2025). ABS-CBN News. 1/3 of government workers have no security of tenure, CSC data shows. https://www.abs-cbn.com/news/nation/2025/10/13/1-3-of-government-workers-have-no-security-of-tenure-csc-data-shows-1953

CSC-COA-DBM Joint Circular No. 1, s. 2025. Revised Rules and Regulations on the Engagement of the Contract of Service (COS) and Job Order (JO) Workers in the Government. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.dbm.gov.ph/wp-content/uploads/Issuances/2025/Joint-Circular/CSC-COA-DBM-JOINT-CIRCULAR-NO.-1,-s.-2025.pdf

 

https://demolitionnutsgrease.com/q9h97sj5?key=23b279e99ed6a529a30f577cdce2aeb9

Factors affecting the profitability of commercial banks in Ilocos Norte

 Rojelyn Marie Sotelo Bagain

Divine Word College of Laoag – Graduate School

Abstract

Commercial banks play a critical role in economic development by mobilizing savings, facilitating payments, extending credit to businesses and households, and contributing to financial stability. The profitability of commercial banks is a critical indicator of their financial health and sustainability, which in turn impacts the overall stability and growth of the regional economy as well as the national economy. Thus, this article discusses the key internal and external factors affecting the profitability of commercial banks and is anchored with different economic theories, which include Agency Theory, Risk Management Theory, Structure–Conduct–Performance (SCP) Theory, Trade-off Theory, and Macroeconomic Theory.

Keywords:

Commercial Banks; Profitability; Internal Factor; External Factors; Agency Theory; Risk Management Theory; Structure–Conduct–Performance (SCP) Theory; Trade-off Theory; Macroeconomic Theory.

Introduction

A commercial bank is a financial institution that accepts deposits, provides loans for individuals and businesses, and offers other services like checking accounts, certificates of deposit, and foreign exchange services. In the Philippines, banking continues to be fundamental for growth, especially in provinces where financial inclusion, investment, and local business development hinge on access to banking services. Ilocos Norte, as a growing province in Region I, has seen increasing economic activity and investment, contributing significantly to the Gross Regional Domestic Product.

However, profitability remains a continuing concern in the banking sector, influenced by both internal (bank‐specific) and external (macroeconomic, regulatory, market) factors. Most importantly that there are several changes occurring in the Philippine banking sector, because of its adaptation to new conditions such as the deregulation of the national markets and the level of competitiveness internationally. At the national level, the Bangko Sentral ng Pilipinas is actively pushing for reforms to accelerate the development of the domestic capital market as an alternative funding source for the economy. Since it is reported that about 98% of the local companies in the Philippines are supplied by the banks, while 2% comes from the capital market. This reform may have capital implications on banking profitability due to increasing market competition. Understanding the factors that affect the profitability of these banks is essential not only for bank management but also for policymakers, investors, and stakeholders who seek to enhance the banking sector’s performance and contribution to economic development (Hinlo, 2025).

Profitability of Commercial Banks

This article focuses on analysing key internal and external factors affecting the profitability of commercial banks. Internal factors typically include bank-specific determinants such as bank size, capital adequacy, asset quality, operational efficiency, loan portfolio composition, and liquidity management. External or macroeconomic factors encompass economic growth, inflation rate, money supply, government regulations, and competitive pressures within the banking industry.

Prior studies in the Philippine banking context have shown that bank efficiency, money supply growth, bank size, and liquidity significantly affect banking profitability, while other studies in similar developing regions highlight the importance of capital adequacy and asset quality as primary profitability drivers. And these are being anchored with different theories.

Agency Theory explores the relationship between principals (e.g., shareholders or owners) and agents (e.g., managers or bank officers), where the agents are supposed to act in the best interest of the principals leading to information asymmetry and potential inefficiencies, impacting profitability through increased monitoring costs, risk-taking (moral hazard), and suboptimal decisions, mitigated by strong governance, incentives, and regulation to align actions with shareholder wealth. (Sukendri et al., 2024)

Meanwhile, risk management theory in banking posits that effectively identifying, assessing, and mitigating risks (credit, liquidity, market, operational) is crucial for sustainable profitability, as these risks directly impact performance, while also influencing risk-taking behavior, creating a complex interplay where good management can boost returns but excessive profitability might paradoxfully encourage riskier ventures, aiming to balance growth with stability. (Babulo & Viswanadham, 2021)

On the other hand, the Structure–Conduct–Performance (SCP) framework is used to examine how the market structure of commercial banks and their operational conduct affect financial performance. Through this model, the study identifies both structural (e.g., competition, market size) and conduct-related (e.g., pricing, credit policy) determinants of profitability.

Moreover, Trade-Off Theory serves as a theoretical foundation for examining how capital structure decisions affect bank profitability. According to the theory, banks must balance the benefits of leverage (e.g., tax shields, increased lending capacity) against the potential costs of financial distress and regulatory non-compliance. In the context of commercial banks in Ilocos Norte, understanding this balance can help explain variations in profitability across institutions with different capital adequacy levels.

This study is also grounded in macroeconomic theories, which explain how large-scale economic factors affect firm-level performance. According to Keynesian and monetarist perspectives, variables such as GDP growth, inflation, interest rates, and unemployment significantly influence the behaviour of borrowers and the operational environment of banks. In the context of Ilocos Norte, where local economic conditions are closely tied to agricultural production, tourism, and remittances, these macroeconomic forces are expected to have a direct impact on bank profitability.

Factors affecting profitability

The profitability of commercial banks is shaped by a complex interaction of internal (bank-specific) and external (environmental) factors, and these relationships can be clearly explained through established financial and economic theories.

From an internal perspective, factors such as management efficiency, asset quality, capital adequacy, liquidity management, cost control, and risk-taking behaviour play a decisive role in determining bank profitability. Agency Theory highlights how conflicts between shareholders, managers, and depositors can reduce profitability when managerial decisions prioritize personal interests over value maximization. Strong corporate governance, performance-based incentives, and effective monitoring mechanisms help mitigate agency costs and improve profitability. In line with Risk Management Theory, prudent credit risk, market risk, and operational risk management enhance profitability by reducing non-performing loans, stabilizing earnings, and preserving capital. Banks that balance risk and return effectively tend to achieve more sustainable profits.

Capital structure decisions are also critical. Trade-off Theory explains that banks aim to optimize their capital mix by balancing the tax benefits of debt against the costs of financial distress. Adequate capitalization strengthens confidence, reduces funding costs, and enhances resilience, thereby positively influencing profitability, although excessive capital may dilute returns.

From an external perspective, market structure, competition, and macroeconomic conditions significantly influence bank performance. The Structure–Conduct–Performance (SCP) Theory suggests that banks operating in more concentrated markets can exercise market power, set favourable pricing for loans and deposits, and earn higher profits. However, excessive concentration may reduce efficiency and innovation over time. Meanwhile, Macroeconomic Theory emphasizes that economic growth, inflation, interest rates, and monetary policy directly affect banks’ profitability by influencing credit demand, loan quality, and net interest margins. Favourable macroeconomic conditions generally support higher profitability, while economic downturns increase credit risk and compress margins.

Conclusion

Overall, commercial bank profitability is not determined by a single factor or theory but by the dynamic interaction between internal managerial decisions and external economic and market forces. Banks that align effective governance (Agency Theory), sound risk practices (Risk Management Theory), optimal capital structures (Trade-off Theory), competitive strategies (SCP Theory), and adaptability to macroeconomic conditions (Macroeconomic Theory) are better positioned to achieve sustainable and resilient profitability.

References

Babulo, A. A., & Viswanadham, P. (2021). The effect of risk management practice on the financial performance of Ethiopian commercial banks. INNOVATIONS, 530003. https://journal-innovations.com/assets/uploads/doc/4600c-1294-1311.23640.pdf

 

Hinlo, J. E.  (2025). Determinants of banking profitability in the Philippines. Usep. https://www.academia.edu/65281585/Determinants_of_Banking_Profitability_in_the_Philippines

Sukendri, N., Muktiyanto, A., Geraldina, I., & Safitri, J. (2024). Agency Theory in Banking: Balancing incentives and mitigating moral hazard in the Principal-Agent dilemma.

 

R, M. R. &. R. J. P. (2017). The Impact of Credit Risk and Capital Adequacy on the Profitability of Rural Banks in the Philippines.  Pakistan Journal of Life and Social Sciences, 22–22, 22877–22887. https://www.pjlss.edu.pk/pdf_files/2024_2/22877-22887.pdf

PAMATMAT, R. J. (2021). Determinants of bank group profitability in the Philippines from 2008 to 2019: A panel data regression approach. Philippine Management Review 2021, 28, 81–110. https://pmr.upd.edu.ph/index.php/pmr/article/download/357/356/

 

Mahmud, K., Mallik, A., Imtiaz, M. F., & Tabassum, N. (2016b). The Bank-Specific Factors Affecting the Profitability of Commercial Banks in Bangladesh: A Panel Data Analysis. International Journal of Managerial Studies and Research, 4(7). https://doi.org/10.20431/2349-0349.0407008

 

 

https://demolitionnutsgrease.com/q9h97sj5?key=23b279e99ed6a529a30f577cdce2aeb9