Phl banking system proves resilience through pandemic
The Philippine banking sector demonstrated its true resilience as it stood firm during the COVID-19 pandemic and through last year’s major collapse of US and European banks, according to the Bangko Sentral ng Pilipinas.
In his message during the 2024 Annual Reception for the Banking Community, BSP Governor Eli Remolona Jr. said the country’s banking system stood firm and proved its true resilience through the COVID-19 pandemic and through the international disruptions of March 2023.
“And for now, the banking system remains healthy, characterized by strong balance sheets, profitable operations, and sound performance indicators,” Remolona said.
Remolona pointed out that the regulator continues to strengthen the way it conducts systemic risk oversight after the collapse of several global banks in the first half of last year.
“You saw what happened in March 2023 with Silicon Valley Bank and Credit Suisse. We don’t want this to happen to us,” the BSP chief said.
Unlike in previous crisis, Remolona said the country’s banking sector is in good shape.
“Many of us remember in the 1980s, our banking system got into trouble along with Latin American countries. In fact, we call that the
Latin American debt crisis. We were part of it,” he said.
“And so, when we tried to recover around 1989 from the Latin American debt crisis, the banks were part of the problem; they were not part of the solution. The banks had to repair their balance sheets,” he added.
Remolona said global banks got into trouble anew during the Asian Financial Crisis in 1997 and 1998 as they had to repair their balance sheets.
“This time around, they were part of the solution. They went through the pandemic with very healthy balance sheets,” Remolona explained.
ROBUST PERFORMANCE
BSP Deputy Governor Chuchi Fonacier said the assets of the Philippine banking system went up by 9.9 percent to P24.4 trillion as of end November last year.
Fonacier said the industry’s deposit base climbed by 8.2 percent to P18.4 trillion, fueled by bank operations, while lending portfolio grew by 9.3 percent to P13.3 trillion.
For the January to September period, she said the sector sustained its profitability as earnings booked a double-digit 11.3 percent increase to P272.6 billion.
Furthermore, Philippine banks’ non-performing loan (NPL) ratio eased to 3.4 percent, while its NPL coverage ratio stood at 101.5 percent as of end November last year.
Likewise, she added that Philippine banks remained wellcapitalized with a capital adequacy ratio (CAR) of 16.6 percent and highly liquid with a liquidity coverage ratio of 183.1 percent and net stable funding ratio of 138.3 percent as of end September 2023.
“If you look at, for example, their capital adequacy ratios (we call them capital buffers), banks, on average, have a 16-percent CAR. That is capital divided by risk-weighted assets. The international standard is 10 percent. They are well above the standard for capital adequacy,” Remolona said.
“When it comes to liquidity, we are at 183 percent. The technical word for this is the liquidity coverage ratio, [which we are at] 183 percent. The international standard is 100 percent. So, our banks are very liquid,” Remolona added.
According to Remolona, Philippine banks have more than adequate capital, which means they can still support our growth.
He said loan growth remains quite healthy with an NPL ratio of 3.4 percent from nearly five percent during the height of the COVID-19 pandemic and 12 percent during the Asian Financial Crisis.
“So, the banks, as I have said, have been part of the solution rather than part of the problem,” the BSP chief said.
BUOYANT OUTLOOK REMAINS
Based on the latest First Semester 2022 Banking Sector Outlook Survey (BSOS), the overall outlook for the banking system remained buoyant amid the slowdown in global economic activity and commodity price increases mostly on account of the Russia-Ukraine war.
Majority of surveyed banks shared a stable outlook of the banking system in 2023 and 2024.
“This optimism was coupled with expectations of double-digit growth in assets, loans, deposits, and net income. Banks informed that they intend to actively participate in the money and capital markets in the next two years as more than half of respondents expect double-digit growth in investments and securities,” the BSP said.
With improving economic condition and recovery of credit activity, the BSP said the loan quality is expected to be better in the next two years, with the percentage of respondent banks that projected their NPL ratio to exceed five percent in the next two years going down to 52.4 percent from 58.9 percent.
Banks recognized the importance of pursuing digitalization as a strategic objective but are in varying stages of implementation.
Based on the results of the survey, 2.8 percent of respondents revealed that their business was 100 percent digital while about 53.7 percent of the total respondents had already embarked on improving their digital capabilities to better serve their clientele.
More than half of respondents were willing to partner with a fintech company with the objective of offering innovative digital financial products or services in the next two years.