Banks Maintain Positive Outlook on Banking System Based on Latest Survey

The banking industry leaders maintained their growth outlook on the banking system in the next two (2) years based on the results of the Banking Sector Outlook Survey (BSOS)[1] for the first semester of 2022.

This 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.

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 5.0 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 2.0 to 3.0 percent from the greater than 3.0 percent in the comparative year. Most UKBs also estimate their NPL coverage ratio to be at least 75 percent to even more than 100 percent.

Digitalization of products and services was identified as a top strategic priority of banks in the next two years. Related to this, majority of banks have already embarked on improving their digital capabilities to better serve their clientele. In terms of area of focus, banks identified deposit operations as the most important area of technology application followed by payment systems.

Mindful that the accelerated shift of financial transactions towards digital platforms may give rise to greater cybersecurity risk, 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 as 70.0 percent of respondent banks viewed such mode of financing as highly important 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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[1]   The BSOS gathers the sentiments of the Presidents/Chief Executive Officers/Country Managers of universal/commercial banks, thrift banks and the top rural and cooperative banks on their growth outlook and risk assessment, business strategies, and insights on regulation and supervision within a two-year horizon. The full report is released in electronic format as a downloadable PDF file on the BSP website.