The banking industry expressed a more subdued optimism on the country’s economic prospects as risks remain tilted to the downside due to the effects of coronavirus pandemic, a new survey by the Bangko Sentral ng Pilipinas (BSP) revealed.
Based on the results of the Banking Sector Outlook Survey (BSOS), majority of the respondents believe that the country’s gross domestic product (GDP) will grow by less than 6.0 percent to 6.3 percent in the next two-years.
The BSOS’ economic growth range result is below the government’s targets, or the inter-agency Development Budget Coordination Committee's projections of 6.5 percent to 7.5 percent for this year and 8.0 percent to 10 percent next year.
“The subdued optimism is in view of the disruptions in activities of the domestic economy due to lockdown along with the global spillovers from soft demand, weaker tourism, and lower remittances,” the central bank report said.
Respondents identified that sectors such as the accommodation, particularly hospitality and tourism, along with transportation, as well as wholesale and retail trade are the hardest hit businesses by the pandemic.
However, the banks also expect the three industries are poised to recover in the next six months to two years.
“Transportation sector will take the longest time of about two years, while accommodation sector will take around one to two years to fully recover,” the BSOS report stated.
Amid the subdued optimism, the banks’ projected return on equity (ROE) will generally tighten with 32.7 percent of respondents expect it to be less than five percent for the current BSOS compared to only 11.3 percent during the previous year.
"The number of relatively more optimistic respondents apparently downgraded their projections as 44.5 percent of respondents expected an ROE of between five percent and 10 percent compared to 54.7 percent in the previous year,” the report said.
Likewise, majority of BSOS respondents expect that the banking system’s non-performing loan ratio (NPL) will exceed the three percent threshold between this year and next year.
Lenders said the slowdown in economic activities may have exerted pressure on the quality of
bank loan portfolio.
As an enhancement of the current BSOS, the banks were also asked to project the ratio of restructured loans to total loans within the next two years.
This new item in the survey looks into the propensity of banks to modify the terms of the loan when borrower is facing financial stress due to unforeseen events like the COVID-19 pandemic and natural disasters.
About 54.4 percent of respondent banks, mostly niche marketers like thrift banks, foreign banks, and rural and cooperative banks (RCBs), projected a restructured loan ratio in the range of more than three percent to more than five percent.
By contrast, 39.2 percent of respondents, skewed by universal and commercial banks (UKBs), are expecting a more conservative restructured loan ratio between less than one percent and one percent.
Another added feature to this enhanced BSOS is the banks’ baseline projection of the NPL coverage ratio to indicate the their perceived ability to absorb future losses.
In the survey, 48.9 percent of the respondent banks projected an NPL coverage ratio in the range of less than or equal to 25 percent to 50 percent, while 44.3 percent of the respondents projected an NPL coverage ratio of between 51 percent and 100 percent.
In fact, 85.7 percent of UKBs are expecting the NPL coverage ratio to hover between 76 percent and greater than 100 percent.
Around 88.9 percent of thrift banks converged on the projected NPL coverage ratio of between 26 percent and 100 percent, while 86.1 percent of RCBs are tilted towards the NPL coverage ratio range of less than or equal to 25 percent to 75 percent.