BANGKO Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said recent indicators show that banks remain resilient despite the negative economic effects of restrictions to curb the pandemic.
This is amid the recent assessments of two of the major international credit watchers, saying the Philippine banking system may face increasing pressures in 2021 as travel and movement restrictions are in place and bad loans continue to rise.
In a recent speaking engagement, Diokno said the Philippine banking system remains strong based on three core strengths: capital position, liquidity buffers and expanding asset base.
Diokno said the banking industry’s strong capital position is evidenced by its stable capital adequacy ratios (CAR) at about 15 percent in the past 10 years.
This is well above the 10 percent minimum threshold set by the BSP and 8 percent minimum set by the Bank for International Settlements (BIS).
Moreover, the risk-based CAR of the universal and commercial banking industry stood at 17.2 percent on a consolidated basis as of end-September 2020.
The BSP governor also said the banks’ liquidity buffers remain “ample.” This, Diokno said, enables banks to withstand short-term liquidity shocks and provides them adequate stable funding in the medium term.
As of end-November 2020, the liquidity coverage ratio (LCR) of banks hit 201 percent. This is double the regulatory minimum of 100 percent. The minimum liquidity ratios of stand-alone thrift, rural and cooperative banks also continued to exceed the regulatory minimum requirement.
Diokno also said banks’ assets continued to expand amid the pandemic on the back of increasing deposit liabilities.
As of end-December 2020, the banking system assets grew by 6.1 percent year-on-year to P19.4 trillion.
“All in all, these contributed to the sustained strength and resilience of the banking sector,” the BSP governor said.
Earlier this week, Fitch Ratings put a negative outlook of the Philippine banks’ asset quality, as further deterioration is likely on the back of expected rise in bad loans for the year.
This comes after the S&P Global Ratings recent assessment that the local banking system will continue to be under pressure in 2021 on account of rising bad loans.