Asset quality, credit risks to banks flagged


ASSET quality and credit risk were considered as top risks to bank operations in the next two years, according to the results of a Bangko Sentral ng Pilipinas (BSP) survey.

Based on the results of the Banking Sector Outlook Survey (BSOS), other identified risks were macroeconomic, operational, and cybersecurity risks.

Asset risk and credit risks were the top operation risks for thrift banks (TBs) and rural and cooperative banks (RCBs). For universal and commercial banks (UKBs), macroeconomic risks posed the most serious threat; and for digital banks (DBs), global risks and cybersecurity threats.

“Cognizant of these risks, banks have continuously strengthened various aspects of their risk governance to protect depositors, investors, and institutions,” the BSP report stated.

“Respondent banks disclosed the top three strengths of their banks’ risk governance framework, with board of directors and senior management oversight topping the list, followed by comprehensive risk management policies, and appropriate risk appetite for the bank’s business, resources, and capital,” it explained.

Despite the threats, BSP said banking industry leaders maintained their growth outlook on the banking system in the next two years.

The BSP said the level of optimism was supported by expectations of double-digit growth in assets, loans, deposits, and net income, as well as general improvement in the banks’ asset and loan quality indicators.

“Philippine banks likewise plan to maintain risk-based capital, leverage, and liquidity ratios at levels higher than domestic and global standards to support expansion in their operations and promote institutional stability,” BSP said.

In terms of loan quality, a lower number of respondents (around 52.4 percent from 58.9 percent in the previous BSOS) estimated a non-performing loan (NPL) ratio of above 5 percent in the next two years.

By banking group, the NPL ratio projection of universal and commercial banks (UKBs) shifted to within the range of greater than 2 to 3 percent from the greater than 3 percent in the comparative year.

Most UKBs, the BSP said, also estimate their NPL coverage ratio to be at least 75 percent to even more than 100 percent.

In terms of banking strategy, digitalization and sustainable finance were considered highly important in banking operations in the next two years.


The BSP noted that digitalization of products and services was identified as a top strategic priority of banks in the next two years.

Related to this, BSP said the majority of banks have already embarked on improving their digital capabilities to better serve their clientele.

In terms of area of focus, the data also showed banks identified deposit operations as the most important area of technology application, followed by payment systems.

BSP also said most of the respondent banks underscored the importance of continuous monitoring and surveillance, and a reliable information technology (IT) department to ensure a quick and appropriate response to IT and/or security incidents.

Banks have also invested in updated security tools, performed periodic vulnerability assessments, and enhanced their security framework, among others.

The survey results revealed a remarkable increase in organizational awareness towards sustainable financing, with 70 percent of respondent banks deeming such mode of financing as highly important, up from 61.7 percent. Among those banks with plans of being involved in sustainable finance, most expressed willingness to finance projects in support of agriculture, solar power, transportation and water supply management and treatment.

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