Philippine banks continue to have optimistic prospects for double-digit growth in assets, loans, deposits, net income, money market investments and capital for the next two years, according to the first half of banking by Bangko Sentral ng Pilipinas (BSP). Sector Outlook Survey (BSOS), one of its monitoring tools.

However, with the economic and business environment still mired in concerns over the COVID-19 pandemic, banks expect bad debt or non-performing loan (NPL) ratio to exceed five percent. cent, also over the next two years. The major banks surveyed estimate an NPL as high as 6.5%.

“The banks’ projections are consistent with BSP’s NPL estimates for the year 2021,” BSP Governor Benjamin E. Diokno said in a statement on Wednesday. He reiterated that the enactment of the law on the strategic transfer of financial institutions and the publication of its implementing rules and regulations “will help to limit the accumulation of non-performing loans in the financial system”.

The BSOS results indicate that banks are prepared to match the rise in bad debts with a higher bad debt coverage ratio and to exercise caution in their credit risk controls. About 75 percent of universal and commercial banks expect 50 to 100 percent higher non-performing loan coverage over the next two years, some estimate 76 percent.

As for restructured loans, banks have mixed projections, the BSP noted. “More banks anticipate that the ratio of their restructured loans to total loans will increase,” BSP said. About 43.5% of banks, mainly savings banks, foreign banks and rural and cooperative banks, said the ratio of restructured loans to total loans could reach more than 5% or up to 15% for small banks. Some banks have a conservative estimate of the ratio of restructured loans between 1 and 2%.

“Overall, asset quality and credit risk emerged as the most significant risk for banks. operations, ”noted the BSP, adding that the risks common to most of the banks surveyed are macroeconomic risks and operational risk. “Improving risk management systems was seen by the majority of banks surveyed as the main tool to strengthen the bank against external headwinds. Likewise, strengthening relationships with clients, maintaining a high level of liquid assets and upgrading staff capacities were also deemed important by respondents in order to protect their respective banks from internal shocks and external, ”BSP said.

Typically, the BSOS, which provides an overview of banks’ direction on their strategic plans and emerging risks and trends, has indicated that while banks expect five to six percent GDP growth over the The next two years, the consumer lending segment will remain “vulnerable and prone to weakening” and the hospitality / tourism industry, as well as the transport sector, will be the sectors hardest hit.

“The optimistic expectations of the banking system based on the BSOS results for the first half of 2021 demonstrate its confidence in the strong medium-term outlook for the country’s economy,” said Diokno.

Despite its “moderate optimism” about the growth prospects, the overall banking outlook is still stable with 76.3% of the banks surveyed projecting a stable banking system over the next two years. About 18.3%, which were mainly rural and cooperative banks, expect a weaker banking system from 2022 to 2023.

The BSP said banks will survive the risks and challenges inherited from the global health crisis over the next few years due to its healthy capital and liquidity reserves, sufficient loan loss reserves, good results and of its prudent risk governance.

And, to ensure the sustainability of their optimistic view, banks will maintain their Basel capital and liquidity ratios at levels that exceed both domestic and global metrics, the PASB said.

“The Philippine banking system also intends to maintain the Basel ratios (risk-based capital, leverage and liquidity ratios) at levels above national and global standards to promote institutional stability,” BSP said. . “In keeping with emerging market trends and changing customer needs, banks have recognized the need to integrate technology to achieve their business goals. Thus, the banks surveyed revealed that they will continue to prioritize the digitization of products and services for strategic efficiency over the next two years, ”adds the report.

The survey results also showed what BSP describes as a “sharp shift” to sustainable financing or the “greening” of banks.

“A high proportion of banks consistently view sustainable financing as an important strategic objective. Thus, around 71.3% of those questioned plan to finance sustainable projects in the fields of agriculture, transport, water supply management and solar energy over the next two years ”, said the BSP.

The BSP recently published a draft guidance that aims to further integrate climate change and other environmental and social risks into banks’ enterprise risk management frameworks, in particular on credit and operational risks.

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