Banks’ optimism eases based on latest outlook survey

The banking industry leaders’ bullish expectations on banking system prospects have eased based on the results of the Banking Sector Outlook Survey (BSOS)^[1] for the second semester of 2020.

The subdued optimism is in view of the disruptions in activities of the domestic economy due to lockdown along with the global spillovers from soft demand, weaker tourism, and lower remittances.

Majority of the BSOS respondents projected that real gross domestic product (GDP) growth will return to a range of less than 6.0% to 6.3% within the next two years.

Respondents identified that economic sectors such as the accommodation (hospitality/tourism), transportation, and wholesale and retail trade are the hardest hit sectors but believed that these sectors are poised to recover in the next six months to two years.

BSP Governor Benjamin E. Diokno noted that the outlook on the Philippine banking system (PBS) remains relatively stable.

“Majority of the respondent banks projected growth in their loan portfolio over the next two years between 10% and 15%,” BSP Governor added.

Likewise, banks anticipate a more active participation in the money and capital markets in the next two years as growth in financial assets (excluding loans) is projected to not exceed 10% by more than half of respondents, while the remaining banks estimate a double-digit growth.

A double-digit deposit growth is also expected by most of the banks to fund financial assets and loan expansion.

Meanwhile, majority of respondents expect the non-performing loan ratio (NPL) to exceed 3% in 2021 to 2022, while the ratio of restructured loans to total loans is estimated at a range of more than 3% to more than 5% by almost half of banks.

The respondent banks also intend to maintain their capital and liquidity ratios at levels higher than domestic and global standards to promote institutional stability.

Banks recognize the need to integrate technology in achieving business objectives and disclosed that they will leverage on financial technology for strategic efficiency in the next two years.

Moreover, mindful of cyberthreats following the lockdown and remote working arrangements, more than half of the respondent banks are ‘prepared’ to handle cyberthreats.

Almost 60% of banks viewed sustainable financing as a highly important strategic objective. Likewise, around 73% of respondent banks are planning to finance sustainable projects in the next two years covering agriculture, transportation, water supply management, and solar power.

The Philippine financial system is projected to withstand the legacy risks and challenges posed by the COVID-19 pandemic within the next two years on account of its relatively stable and sound capital, leverage and liquidity buffers, ample loan loss reserves and buoyant earnings performance.

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 tools in promoting the resilience of the banking system.