PHILIPPINE BANKS see double-digit growth in their assets, loans, deposits, and net income for the next two years as they expect the economy’s recovery to continue, the Bangko Sentral ng Pilipinas (BSP) said on Tuesday.
Results of the BSP’s Banking Sector Outlook Survey (BSOS) for the second semester of 2021 showed banking industry leaders are bullish on their operations as they are optimistic about the country’s economic outlook.
Respondents of the survey are presidents, chief executive officers, country managers of all universal and commercial and thrift banks, and 80 rural and cooperative lenders in the country that accounted for 94.4% of the total assets of the banking industry as of end-December 2021.
They were asked about their growth outlook, risk assessment, and business strategies within a two-year period. The survey is part of the BSP’s surveillance toolkit to help improve the banking system’s resilience.
Excluding the impact of the Russia-Ukraine war and inflation-related developments, banks expect Philippine gross domestic product (GDP) to grow above 6%, the survey results showed.
“More bank respondents (48.3% of respondents vis-à-vis 35.4% in end-December 2020) expect GDP to improve to above 6%. Of these respondents, 25.2% project GDP growth of between 6% and 6.3%, while 23.1% of the survey participants forecast GDP growth by more than 7%,” the BSP said.
“The banks’ level of optimism on the country’s economic prospects is also seen in their overall outlook for the Philippine banking system (PBS) with expectations of double-digit growth in assets, loans, deposits and net income,” it added.
The BSP said in terms of loan quality, a lower number of respondents or around 57.3% from 63.5% in the previous survey estimate a nonperforming loan (NPL) ratio of above 5% in the next two years.
The survey’s results showed universal and commercial banks (U/KBs) expect their NPLs to make up just 2-3% of their total loans from the 3-5% ratio they forecasted in the survey for the first semester of 2021.
However, most thrift banks (TBs) and rural and cooperative banks (RCBs) still expect elevated NPL ratios with only a marginal improvement in the latest survey.
Latest central bank data showed the gross NPL ratio of the Philippine banking industry dropped to 3.6% at end-June from 4.48% a year ago and 3.75% in May.
Meanwhile, 42.7% of respondents project an NPL coverage ratio of 51% to over 100%. The rest of the respondents see a ratio of 50% and below.
Banks also have mixed projections on restructured loans, the BSP said.
About 30.1% of respondents see a restructured loan ratio of more than 5% of their loan portfolio and up to 10% for small banks, while over 23% of respondents see a more conservative restructured loan ratio of between 1% and 2%.
“This reflects continued efforts of banks to grant financial relief to their borrowers through modifications in their loan payment terms,” the BSP said.
“Philippine banks also intend to maintain risk-based capital, leverage, and liquidity ratios at levels higher than domestic and global standards to promote institutional stability,” it added.
Most leaders in the banking industry said corporate and retail banking will continue to be their main priorities, followed by payments and settlement services, cross-selling, and treasury operations.
Banks also said they expect wholesale and retail trade and consumer loans to recover in the next 12 months, while agriculture loans will take about two years to fully recover.
“Banks disclosed that digitalization of products and services will be prioritized in the next two years, as banks recognize the need to integrate technology in achieving their business objectives,” the BSP said.
According to the BSOS, banks are now looking to develop new capabilities, leverage on client relationships to maintain growth, and expand their market reach digitally or through the offering of new products or services in the new arrangement.
The survey results also showed there was increased organizational awareness among banks about sustainable financing following the BSP’s issuance of environmental, social and governance (ESG)-related guidelines.
“Majority of respondents indicated that they are planning to finance sustainable projects in the next two years,” the BSP said.
Meanwhile, banks said the top risks to their operations are asset quality and credit risks.
Respondents are also wary of macroeconomic and operational risks, the survey’s results showed.
To protect their respective banks against internal and external shocks, lenders said they are enhancing risk management systems, strengthening client relationships, and upgrading personnel capabilities, the BSP said.
“Moving forward, the strength and positive outlook of the banking system is complemented by the prudential and strategic reforms undertaken by the BSP over the years, as well as its swift, time-bound and targeted relief measures, many of which remain in place,” the central bank said.
“The BSP will also adopt prudential standards that will strengthen corporate and risk governance, promote responsible innovation and sustainable finance, and uphold financial integrity and operational resilience in its supervised financial institutions. All these are intended to foster a resilient, dynamic, and inclusive financial system that is supportive of sustainable economic growth,” it added. — K.B. Ta-asan