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Article | August 20, 2022

Bankers in the Philippines cautiously optimistic for 2022

Originally published on Philstar, check the link here.

MANILA, Philippines — The heads of the country’s largest banks described 2021 as a better-than-expected year, but are cautiously optimistic about 2022 as the Philippines slowly emerges from the pandemic-induced recession.

Nestor Tan, president and chief executive officer at BDO Unibank Inc., told The STAR that 2021 turned out better than expected as the Philippines exited recession that stretched through five quarters, with back-to-back gross domestic product (GDP) growth of 12 percent in the second quarter and 7.1 percent in the third quarter.

Tan said the favorable outlook is seen to continue in the fourth quarter and into this year on broadening economic activity given declining COVID cases as well as rising vaccination coverage and increasing mobility.

After a stronger-than-expected GDP expansion in the third quarter, economic managers through the Development Budget Coordination Committee (DBCC) raised last year’s growth target to a range of five to 5.5 percent and seven to nine percent for this year.

“This positive backdrop is seen to benefit the banking industry, as loan demand is expected to pick up with the economic expansion,” Tan said.

After slumping for eight straight months, the loan disbursements of big banks accelerated starting August as the economy finally absorbed the 200-basis-point interest rate cuts of the Bangko Sentral ng Pilipinas (BSP) last year.

Latest data showed the increase in loans extended by universal and commercial banks accelerated to 3.5 percent to reach P9.27 trillion in October from 2.7 percent in September amid the gradual reopening of the economy.

“The economic expansion is seen driving banks’ earnings with the recovery in interest incomes coming from higher loan growth and interest rates and fee-based bank services increased volume of transactions,” Tan said.

For one, the earnings of BDO Unibank almost doubled to P32.5 billion from January to September compared to P16.6 billion in the same period last year.

“In the case of BDO, our earnings for the first nine months of 2021 were already back to pre-pandemic levels, driven by the strength in our core businesses and from the normalization of provisions we set aside last year. We are on track to meet our internal targets this year,” Tan said.

Cautiously optimistic
Fabian Dee, president of Metropolitan Bank & Trust Co. (Metrobank), said the Ty-led bank is cautiously optimistic about 2022 despite the expected one percent boost from the elections in May next year to the country’s GDP.

“So next year looks like an exciting year for all of us. I’m cautiously optimistic, hopefully in the next three weeks, we will see a continuous trend of improvement in our COVID situation,” Dee said.

Dee was referring to the declining number of COVID infections in the country that peaked to more than 20,000 cases daily in September but has gone down to below 500 per day over the past few weeks.

Hopefully, Dee said the trend would continue to improve so the Christmas season would be good for families and businesses even with the emergence of the Omicron variant.

“For our country, if these health issues continue the way they do, our economy should do well. There’s very sufficient liquidity in the banking system. Everyone is just waiting for things to quiet down and for things to lead people, consumers and businessmen alike to start going back to our normal life,” Dee said.

The earnings of Metrobank jumped by 46 percent to P16.12 billion in the first nine months from P11.05 billion in the same period last year amid the proactive management of bad debts resulting in lower provision for potential loan losses.

Full of opportunities
For his part, Bank of the Philippine Islands president and CEO Jose Teodoro “TG” Limcaoco said 2021 was full of opportunities brought about by the pandemic.

“During this ongoing pandemic, we learned to pivot, to improve, and to see things from a different perspective. There’s the opportunity to go full blast on our digital transformation journey, boost our sustainability efforts, and focus more on improving customer experience. We have to keep our customers on top of our minds and look at things from their perspective. We want to be heroes for them,” Limcaoco told The STAR.

BSP Governor Benjamin Diokno has committed to convert 50 percent of total retail transactions to electronic channels and increase the number of Filipino adults with bank accounts to 70 percent by 2023 under the central bank’s Digital Payments Transformation Roadmap, in an effort to transform the country into a cash-light from a cash-heavy economy.

The share of digital payments to total retail transactions increased to 20.1 percent in 2020 from only one percent in 2013, while the number of banked Filipino adults improved to 53 percent in the first quarter from 29 percent in 2019.

“And just as how we saw the rise of a digital economy and how it benefited the Filipino people amid this ongoing global health crisis, I see that more banks will further push for digitalization initiatives next year to capture more clients and to improve their services as well. Banking has always been a very competitive business and customers will always be on the lookout for the bank that can serve them best,” Limcaoco said.

Limcaoco said BPI aims to become the undisputed banking leader in the eyes of its clients. “We will continue to reinvent the way we serve our clients by providing easy access to smart, convenient and secure financial services via digital and physical channels.”

Edwin Bautista, president and CEO of Union Bank of the Philippines, said that 2021 was a year where the bank’s digital transformation really paid off big time.

On top of hitting its net income and return on equity (ROE) targets this year, Bautista said the Aboitiz-led bank was awarded a digital banking license by the BSP through Union Digital Bank.

Likewise, its financial technology arm UBX was able to ramp up its digital platform due to the pandemic.

To cap the year, UnionBank bagged a deal to acquire the consumer banking and retail business of global banking giant Citigroup in the Philippines for P55 billion.

“We have the deal of the year with Citi, so what more can I ask for. From our perspective, 2021 was one of the best years ever because so many transformational projects happened this year,” Bautista told The STAR.

Return to pre-pandemic levels
Security Bank president and CEO Sanjiv Vohra described 2021 as a year of calibration as the bank adjusted its strategy as the country was in and out of strict lockdown and quarantine measures due to the pandemic.

“We accomplished a lot in 2021: we built capabilities, improved processes, enhanced infrastructure, systems, and data management—all to remain focused on our goal of customer-centricity,” Vohra said.

Heading into 2022, Vohra said Security Bank is buoyed by the resurgence of economic activity brought about by the vaccine deployments and relaxation of restrictions. “We expect the banking industry to return to pre-pandemic levels,” Vohra added.

Vohra said mobility restrictions, vaccine rollouts, as well as consumer and business sentiment are the crucial triggers in a more sustainable economic recovery.

“On mobility restrictions, we expect successive loosening given the reduction in infections. On vaccine rollouts, while it was initially behind earlier expectations and despite the threat of other variants, the momentum has built up, particularly in the National Capital Region, encouraged further with the deployment of booster shots. On consumer and business sentiment, this seems to be lifting given the foregoing developments,” Vohra said

Fitch Ratings believes Philippine banks would continue to face revenue headwinds and higher non-performing loan (NPL) ratios amid the global health crisis.

After plunging by 33 percent last year due to the impact of the pandemic, latest data from the BSP showed the net income of Philippine banks jumped by 35 percent to P168.21 billion from January to September this year compared to P124.55 billion in the same period last year.

Fitch said the industry’s NPL ratio may rise to nearly six percent this year before improving next year.

“We have consistently said that forecasting a peak in terms of banking industry NPL or our bank’s NPL is tricky and difficult as this is highly dependent on the eventual reopening of the economy,” Vohra said.

Instead of forecasting a peak NPL ratio for our bank, we planned for proactive provisioning based on a rolling view of the intensity of the credit challenge in the last two years.

“There has been a significant reduction in our 2021 provisions or credit costs compared to 2020, but, ultimately, this is still going to be tied to the performance of the economy moving forward,” Vohra said.

For his part, Tan said BDO’s NPL ratio stood at 3.1 percent in end September, versus its worst-case expectation of four to five percent.

The BSP expects the NPL ratio of the industry to peak at 8.2 percent in 2022. The asset quality of Philippine banks improved for the second straight month a 4.42 percent in October from 4.44 percent in September after hitting a 13-year high of 4.51 percent in July and August.

Banking sector to support economic recovery
Diokno said Philippine banks have built resilience to shocks and the industry is seen supporting the full recovery of the economy from the pandemic-induced recession.

“While the pandemic caused a rise in soured debts, asset quality remains sound. Banks also have ample buffers against credit losses,” the BSP chief said.

Diokno said banks in the country continue to enjoy more-than-enough liquidity as the COVID response measures of the BSP unleashed P2.3 trillion into the financial system, while lending has recovered on improving demand for loans.

“Banks have ample capacity to absorb shocks, with capitalization remaining well beyond the minimum regulatory requirements. Banks have also remained profitable throughout the crisis,” Diokno said.

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