PH banking system solid amid pandemic
Despite the severe impact of the coronavirus disease 2019 (Covid-19) pandemic, the country’s banking system remained strong this year, according to the Bangko Sentral ng Pilipinas (BSP).
Latest central bank data showed that the system’s total resources hit P19.34 trillion at end-October, up 8.26 percent and 0.41 percent from a year and a quarter ago.
Banks’ balance sheets sustained moderate quarterly growth in assets and deposits, the Bangko Sentral said, but noted that “asset quality mildly deteriorated” and “capital adequacy ratios stayed above international standard.”
Lenders also remained dominant, with universal and commercial banks accounting for about 92.3 percent of total resources.
Bank lending growth slowed by 1.9 percent in October from the revised 2.6 percent in September, which the BSP said “reflects the combined effects of muted business confidence and banks’ stricter loan standards, attributed mainly to [the] continued disruptions in business operations.”
Nonperforming loans (NPL) reached P391.42 billion in the first 10 months, up 69.89 percent from P230.39 billion year-on-year.
Their total loan portfolio inched up by 1.14 percent to P10.60 trillion at end-October from P10.48 trillion a year ago. This translated to a gross NPL ratio of 3.69 percent, up 3.47 percent and 2.20 percent from a month and a year earlier, respectively.
In terms of banking policies, the Bangko Sentral implemented this year the ceiling on interest or finance charges for credit-card receivables. The 24-percent cap took effect on November 3 and will be reviewed every six months.
The regulator also allowed trust corporations to distribute their unit investment trust funds through individual and institutional agents. It also approved the establishment of branches and marketing offices of these firms.
The central bank also launched its own securities in September, issued under the interest-rate corridor framework for its monetary policy implementation and liquidity-management operations. The securities would also add to the pool of risk-free assets with state-issued ones that can be traded for liquidity purposes.
It also reduced the reserve requirement ratio of universal and commercial banks by 200 basis points to 12 percent in March. This ratio is the proportion of current deposits banks need to keep with the BSP against the sum they can loan out to borrowers.
Other implemented regulations include the real-estate limits of banks; exclusion of debt securities held by market makers from the single borrowers limit; implementing rules and regulations of Republic Act 10878, or “An Act Strengthening and Institutionalizing Direct Credit Support of the Land Bank of the Philippines to Agrarian-reform Beneficiaries, Small Farmers and Fisherfolk;” and payment system oversight framework.
Still favorable
The BSP said the banking system’s prospects remained favorable in 2021, with fundamentals strong and risk governance sound.
“Even with risks posed by the pandemic, banks managed to report sustained growth in assets, loans, and deposits, while maintaining satisfactory loan quality,” the central bank said.
“The banking system also sustained its profitability and maintained sufficient buffers to meet liquidity and capital requirements,” it added.
But key risks remain. These include lingering uncertainties over the pandemic as the number of Covid-19 cases here and overseas continues to rise; the extent of global spillovers from soft demand; and implications of financial-market sentiment on global capital flows.
The BSP said the global economy remained fragile and potential setbacks continue to cloud forecasts. Natural calamities, La Niña, disruptions in supply chains and logistics, muted consumer and investor sentiment, and delays in state infrastructure projects could pose headwinds to the Philippine economy’s modest rebound in the near term, it added.
Looking ahead, the Bangko Sentral said it would continue to remain vigilant and data-driven in ensuring that suitable monetary and fiscal policy measures are in place.
It also said the pandemic had highlighted the need for the regulator to remain committed to its reform agenda and advocacies, including building an environment conducive to digital innovations.
“In line with its thrust to promote financial inclusion and digital payment innovations, current BSP initiatives and strategies in advancing an efficient, inclusive, safe, and secure digital payments ecosystem are embodied in its Digital Payments Transformation Roadmap 2020-2023,” the central bank said.
Under this roadmap, the BSP aims to increase digital retail payments and the number of Filipino adults with access to financial services to 50 percent and 70 percent, respectively, by 2023.