BSP Governor Benjamin Diokno said the banking system’s optimistic outlook reflected its “confidence in the country’s strong medium-term prospects.”

Local lenders also plan to maintain Basel capital and liquidity ratios above national and global standards to promote institutional stability and support a growing economy. Moreover, most respondents expect their NPL ratio to exceed 5% in the next two years.

In the next two years, universal and commercial banks’ NPL ratios will range from 3.0% to 6.50%.However, the industry is becoming more cautious in managing credit risk, as more banks plan to publish NPL coverage ratios of 50.0-100.0 percent.

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Banks expect restructured loans to be higher than 5.0 percent, up from earlier projections of 3.0 to 5.0 percent. This demonstrates the banks’ ongoing efforts to help debtors by modifying loan repayment arrangements.

Banks increasingly realize the necessity to use technology to achieve business goals and have prioritized digitalization of products and services for two years. The lockdown and remote working arrangements have made many banks more ‘prepared’ to handle and manage cyberthreats.

Finally, the poll shows a clear organizational focus on sustainable financing. Sustainable financing is a key strategy priority for many banks. So, in the following two years, roughly 71.3% of respondents aim to fund sustainable agricultural, transportation, water management, and solar energy initiatives.

The Philippine banking system is expected to weather the COVID-19 pandemic’s legacy risks and challenges within two years thanks to strong capital and liquidity buffers, ample loan loss reserves, strong earnings and prudent risk management.

The study asks bank executives about the industry’s strategic direction, risks, and trends. This is one of the BSP’s surveillance tools to strengthen the financial system.

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Total assets of the Philippine banking system climbed 6.5 percent year-on-year to P19.3 trillion as of end-February 2021, according to BSP data. Asset growth was driven by deposit growth, bond issuance, and capital infusion.

Universal and commercial banks held the largest share of total assets (92.8%), followed by thrift banks (5.7%) and rural and cooperative banks (1.4%). (P0.3 trillion).

A pandemic-induced real-estate slowdown dragged on the financial sector, the BSP stated. In February 2021, the gross total loan portfolio shrank by 3.0% to P10.6 trillion, compared to 10.2% in February 2020.

The yearly nominal bank credit-to-GDP ratio was 60.5 percent as of December 2020.From end-March 2020 (start of the enhanced community quarantine) to end-February 2021, the BSP’s monetary policy easing resulted in a general decline in mean and median interest rates on bank loans.

The global mean weighted average interest rate for the banking sector fell from 8.2% in March 2020 to 4.9 percent in February 2021. Banks’ median WAIR fell from 5.8% in March 2020 to 4.4 percent in February 2021.

The mean and median WAIR of loans to private corporations, agrarian reform and other agricultural loans, small and medium firm loans, and personal loans all declined. During the COVID-19 pandemic, the banking system’s non-performing loan ratio rose to 4.1 percent from 2.2 percent a year earlier.

Loan loss provisions increased in tandem with NPLs. Banks started recognizing loan loss provisions in 2020 to prepare for the pandemic’s impact on their loan portfolios. As of February 2020, the NPL coverage percentage was 86.6 percent.

Across banking organizations, U/KBs had a 95.3 percent NPL coverage percentage. TB and RCB projected credit losses were effectively covered, with coverage ratios of 51.9 and 55.5 percent, respectively.

Deposits (76.9%, P14.9 trillion), capital (12.7%, P2.5 trillion) and bonds payable (3.6%) funded the banking system (P0.7 trillion). At the end of February 2021, total bank deposits climbed 9.0% year-on-year to P14.9 trillion.

As of end-February 2021, U/KBs had 92.9 percent (P13.8 trillion) of deposit liabilities, followed by TBs at 5.7 percent (P0.9 trillion) and RCBs at 1.4 percent (P0.2 trillion).

The U/KB industry grew deposits by 10.0% year-on-year, compared to 9.0% for the PBS industry. During the same time period, the TB industry recorded a 5% fall in deposit growth. Bonds payable increased by 15% year-on-year to P0.7 trillion in February 2021.

The U/KB industry’s capital adequacy ratios are considerably over the BSP’s 10% and the Bank for International Settlements’ 8% minimum criteria. End-December 2020, the U/KB industry’s CARs were 16.6% for solo and 17.1% for consolidated.

While the banking system’s bottom line remained healthy, net earnings fell 32.7 percent to P155.2 billion in 2020. Provision for credit losses on loans and other financial assets increased to P211.6 billion for the year ended December 2020.

Banks’ physical network grew. By end-February 2021, there were 13,056 bank offices, 532 head offices and 12,524 smaller offices.

Source: Manila Standard

Photo credits: Manila Standard