Banks maintain positive growth outlook based on latest survey

The banking industry leaders shared optimistic views regarding the country’s economic prospects based on the results of the Banking Sector Outlook Survey (BSOS)^[1] for the second semester of 2021.

The banks’ level of optimism on the country’s economic prospects is also reflected in their overall outlook for the Philippine banking system (PBS) with expectations of double-digit growth in assets, loans, deposits and net income for the next two (2) years.

In terms of loan quality, a lower number of respondents (around 57.3 percent from 63.5 percent in the previous BSOS) estimate a non-performing loan (NPL) ratio of above 5.0 percent in the next two years.

By banking group, the topmost NPL ratio projection of universal and commercial banks (UKBs) shifted to between greater than 2.0 to 3.0 percent from the greater than 3.0 to 5.0 percent tier in the first semester of 2021.

Meanwhile, 42.7 percent of respondents project an NPL coverage ratio in the range of 51 percent to more than 100 percent.

Banks have mixed projections regarding restructured loans as 30.1 percent of respondents estimate restructured loan ratio of more than 5.0 percent (mostly up to 10 percent of their loan portfolio for small banks).

By contrast, about 23.0 percent of respondents predict a more conservative restructured loan ratio of between 1.0 and 2.0 percent. This reflects continued efforts of banks to grant financial relief to their borrowers through modifications in their loan payment terms.

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.

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.

Even prior to the pandemic, banks have been striving to better serve their clientele by making some of their products and services accessible through digital platforms. In line with this, majority of UKBs have already adopted programs on digitalization and implemented initiatives to improve their capabilities in this area.

Lastly, the survey results revealed increased organizational awareness towards sustainable financing, as more respondent banks viewed such mode of financing as highly important following the BSP’s issuance of Environmental, Social and Governance-related guidelines.

Amid the long tail of the COVID-19 pandemic, the Philippine banking system is projected to withstand the legacy risks and challenges of the COVID-19 pandemic within the next two years on account of its stable and sound capital and liquidity buffers, ample loan loss reserves, good earnings performance and prudent risk governance.

The BSOS provides insights of bank management on the strategic direction of the industry and emerging risks and trends. This is part of BSP’s surveillance toolkit in promoting the resilience of the banking system.

^[1]   The BSOS gathers the sentiments of the Presidents/Chief Executive Officers/Country Managers of universal/ commercial banks, thrift banks and the top rural and cooperative banks on their growth outlook and risk assessment, business strategies, and insights on regulation and supervision within a two-year horizon. The full report is released in electronic format as a downloadable PDF file on the BSP website.