LOCAL lenders see the Philippine economy underperforming against the government’s target range for the year as the lingering effects of the global health crisis will still likely hurt the country’s prospects of recovery.
However, amid their gloomy outlook on the Philippine economy, banks reported an improved outlook on their industry’s performance for the year.
The results of the Bangko Sentral ng Pilipinas’ (BSP) latest Banking Sector Outlook Survey (BSOS) in the first half of the year showed that most banks, representing 41.9 percent of the respondents, expect the country’s gross domestic product (GDP) growth to range between 5 percent and 6 percent within the two-year horizon.
This is below the latest government target growth range of 6 to 7 percent in 2021. In the first quarter of the year, local GDP contracted by 4.2 percent due to the continued restrictions in economic activity.
Meanwhile, 20.9 percent of survey participants project GDP growth of between 6 percent and 6.3 percent.
“Banks report subdued optimism on the country’s economic prospects due to uncertainties brought about by the resurgence of Covid-19 cases, reimposition of targeted lockdown measures and delay in the vaccination rollout in the first quarter of 2021,” the BSP said.
Banking system outlook
However, amid the banks’ gloomy outlook on the country’s economic prospects, their overall outlook for the banking system remains stable.
In particular, 76.3 percent of the banks projected a stable Philippine banking system in the next two years. This was higher than the Philippine banking system overall outlook for the second semester of 2020 wherein 68.8 percent of the industry leaders forecasted a stable sector.
The report also said the banks’ expectations of improvement in economic growth and stable outlook on the Philippine banking sector influenced 60 percent of the respondents to project double-digit growth in bank assets for the year.
“The upbeat expectations of the banking system based on the results of the Banking Sector Outlook Survey (BSOS) for the first semester of 2021 is testament to its confidence in the strong medium-term prospects of the country’s economy,” BSP Governor Benjamin Diokno said.
Local banks also intend to maintain their Basel capital and liquidity ratios at levels higher than domestic and global standards to promote institutional stability and strengthen capacity to support requirements of a growing economy.
The survey also showed that the majority of banks expect their nonperforming loan ratio (NPL) to exceed 5 percent in the next two years.
In particular, universal and commercial banks see their NPL ratio settling between 3 percent and 6.5 percent in the next two years. This is, however, accompanied by greater prudence in the management of credit risk by the industry as a higher number of banks intend to report NPL coverage ratios of more than 50 percent to 100 percent.
“The banks’ projections are consistent with the BSP’s NPL estimates for the year 2021. The enactment of the Financial Institutions Strategic Transfer Act as well as the issuance of its implementing rules and regulations in the first semester of 2021 will help limit build-up of NPLs in the financial system,” the governor said.
The BSOS for the first semester of 2021 covers all universal and commercial banks, thrift banks and 80 rural and cooperative banks.
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