PHILIPPINE BANKS expect to post double-digit growth in assets, loans, deposits, and net income in the next two years despite the current high inflationary environment and a looming global economic slowdown, the Bangko Sentral ng Pilipinas (BSP) said.
Results of the BSP’s Banking Sector Outlook Survey (BSOS) for the first semester of 2022 showed banking industry leaders maintained a positive growth outlook on their operations.
“The overall outlook for the banking system remained buoyant amid the slowdown in global economic activity and increasing commodity prices in the first half of 2022, following tightening in global financial conditions and the ongoing geopolitical tensions between Russia and Ukraine,” the BSP said.
Survey respondents include presidents, chief executive officers, country managers of all universal and commercial banks (U/KBs) and thrift banks, 80 rural and cooperative lenders, and two digital banks that account for 97% of the total assets of the banking industry as of end-December 2021.
Respondents were asked about their growth outlook, risk assessment, and business strategies within a two-year period. The survey is part of the BSP’s surveillance toolkit to help improve the banking system’s resilience.
“Majority of surveyed banks shared a stable outlook of the banking system in the next two years. This optimism was coupled with expectations of double-digit growth in assets, loans, deposits, and net income,” the BSP said.
However, the latest survey showed about 67.9% of banks see a stable banking system, which is lower than the 76.3% in the previous survey.
Around 32.1% of the banks expect a stronger sector in the next two years, significantly more than the 5.4% in the prior survey.
None of the respondent banks forecasted a weaker banking system for the two-year period.
Most lenders expect their assets to grow between 10% and 15%, while digital banks projected asset growth up to more than 20%.
“The expansion in bank assets was expected to be largely in the form of credit growth to further support the country’s financing needs,” the central bank said.
About 78.9% of banks anticipate double-digit growth in their loan portfolio for the next two years, higher than the 72.7% seen in the prior survey.
Universal banks surveyed said they would want to focus on the manufacturing, wholesale and retail trade, and consumer finance sectors in the next two years.
BSOS results also showed banks have a more optimistic outlook on their profitability, with 77.9% of respondents seeing double-digit growth in net income, higher than the 74.4% in the previous survey.
Better loan quality is also expected in the next two years due to the economy’s recovery and a rebound in credit activity. About 52.4% of banks expect their nonperforming loan (NPL) ratio to exceed 5%. This is a lower number compared with the 58.9% of respondents in the previous survey.
As of January, the industry’s NPL ratio stood at 3.28%, lower than the 4.14% in January 2022.
Half of the banks surveyed also anticipate an NPL coverage ratio of 51% to more than 100% in the next two years.
By banking group, the NPL ratio projection of universal and commercial banks shifted to within the range of greater than 2-3% from above 3% in the previous year. Most U/KBs also see their NPL coverage ratio to be at least 75% to more than 100%.
“Digitalization of products and services was identified as a top strategic priority of banks in the next two years,” the central bank said.
According to the BSOS, majority of banks are already improving their digital capabilities. Banks also identified deposit operation as the most important area of focus, followed by payment systems.
Due to the increasing digitalization of financial transactions, banks are aware that risks to cybersecurity may arise.
Most of the respondent banks said it is important to continually monitor against threats, and that a reliable information technology department would ensure quick response to security incidents.
“Banks have also invested in updated security tools, performed periodic vulnerability assessments, and enhanced their security framework, among others,” the BSP said.
Meanwhile, banks said the top risks to their operations are asset quality and credit risks.
Respondents are also wary of macroeconomic, operational risks, and cybersecurity threats, the survey’s results showed.
To protect their respective banks against internal and external shocks, lenders said they are strengthening their risk governance framework, the BSP said.
“The Philippine banking system sustained its resilient and robust performance amid the lingering effects of the COVID-19 (coronavirus disease) crisis alongside the tightening of global financial conditions,” the BSP said.
“Moving forward, the BSP will continue to adopt prudential measures that will strengthen corporate and risk governance in banks as well as promote responsible innovation and mainstream sustainable finance. All these are intended to foster a resilient, dynamic, and inclusive financial system that is supportive of sustainable economic growth.” — Keisha B. Ta-asan