Banks remain optimistic based on latest outlook survey

The banking industry leaders continue to view the outlook of the banking system as stable with expectations of double-digit growth in assets, loans, investments, deposits, and net income for the next two (2) years.

Bangko Sentral ng Pilipinas BSP Governor Benjamin E. Diokno noted that “The upbeat expectations of the banking system based on the results of the Banking Sector Outlook Survey (BSOS) for the first semester of 2021 is testament to its confidence in the strong medium-term prospects of the country’s economy.”

Philippine banks also intend to maintain their Basel capital and liquidity ratios at levels higher than domestic and global standards to promote institutional stability and strengthen capacity to support requirements of a growing economy.

Meanwhile, majority of the survey respondents expect their non-performing loan ratio (NPL) to exceed five percent in the next two years. Universal and commercial banks see their NPL ratio settling between 3.0 percent and 6.5 percent in the next two (2) years.  This is, however, accompanied by greater prudence in the management of credit risk by the industry as higher number of banks intend to report NPL coverage ratio of more than 50.0 percent to 100.0 percent.

BSP Governor Diokno added that “The banks’ projections are consistent with the BSP’s NPL estimates for the year 2021.  The enactment of the Financial Institutions Strategic Transfer Act as well as the issuance of its implementing rules and regulations in the first semester of 2021 will help limit build-up of NPLs in the financial system.”

Banks also anticipate restructured loans ratio to be higher than 5.0 percent from earlier projections of between 3.0 percent to 5.0 percent of loans.  This reflects continued efforts of banks to grant financial relief to their borrowers through modifications in their loan payment terms.

Banks recognize the need to integrate technology in achieving business objectives and disclosed that they will continue to prioritize the digitalization of products and services 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 and manage cyberthreats.

Lastly, the survey results showed a distinct shift in organizational focus towards sustainable financing. A high proportion of banks consistently view sustainable financing as an important strategic objective. As such, around 71.3 percent of respondents plan to finance sustainable projects on agriculture, transportation, water supply management, and solar power in the next two (2) years.

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 tools in promoting the resilience of the banking system. (BSP)