By LEE C. CHIPONGIAN
Local banks are strong enough to withstand the effects of the global health scare since banks are adequately capitalized and prepared for potential losses that could arise because of the coronavirus disease 2019 or COVID-19, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.
“The fear that Philippine banks will experience bad loans and slower credit growth on account of COVID-19 outbreak is unfounded,” Diokno said. “The fact is that banks are adequately capitalized. They have capital adequacy ratio (CAR) much higher than BSP-prescribed 10 percent and Bank of International Settlements’ prescribed eight percent.”
On Monday, after the health department announced four new COVID-19 cases in the country for a total 10 reported so far since the outbreak began, credit rating agency S&P Global said Philippine banks could face a slow year for corporate loans and potential increase in non-performing loans (NPL).
“The impact of COVID-19 could drag on demand for corporate loans — which make up 82 percent of banking system’s loans — and stifle momentum in the retail segment. Last year, retail loans were a key growth driver, expanding 16 percent year-on-year,” noted S&P credit analyst Nikita Anand.
However, S&P also said that they think banks “will be resilient” because of strong fundamentals.
Anand said the banking sector has about 12 percent exposure in the wholesale and retail trade and about two percent exposure in the hotels and catering business that are most affected by the virus outbreak. “This is meaningful exposure and could translate to higher delinquencies,” she warned.
Diokno is not worried about the potential hits to banks because one, banks are in a strong position to address both local and global threats including COVID-19, and two, the BSP is doing its homework. It is not only the health risks that are being taken cared of, he said.
“In recognition of potentially crippling impact of certain events like COVID-19, African swine flu and other unforeseen calamities, BSP has made available a grant of regulatory relief to some concerned banks and quasi-banks.
Temporary regulatory relief measures include among others staggered booking of allowance for credit losses, non-imposition of penalties on legal reserve deficiencies, and non-recognition of certain defaulted accounts as past due,” said Diokno.
For this year, S&P downgraded its credit growth forecast to 8-10 percent for the Philippines, versus its previous projection of 10-12 percent.
“This means the country’s banks could see a second year of single-digit growth after a long run of double-digit expansions in previous years,” said Anand.
Last year, because of the ongoing trade wars and budget delays, credit growth was only at 8.8 percent from 15 percent in 2018.
Amid the COVID-19 global threats, S&P has also revised its 2020 GDP forecast for Philippines to 5.8 percent from 6.2 percent. “This is less of downward adjustment compared with Asia-Pacific countries more exposed to people and supply-chain flows from China. However, it still has implications for the Philippines banking sector,” said Anand.
As for bad loans, in 2019 NPLs went up to 2.1 percent of outstanding loans from less than two percent in 2018, mainly because of the Korean shipbuilder Hanjin Industries debt default.