The country’s banking sector expects continued recovery in the next two years with an above six-percent economic growth, adequate capital and liquidity buffers, ample loan loss reserves and sustained profits.

Based on the latest Bangko Sentral ng Pilipinas (BSP) Banking Sector Outlook Survey (BSOS) for the second semester of 2021, with continued GDP expansion, banks remain confident of double-digit growth in assets, loans, deposits and net income.

BSOS which covered all 45 big banks, 43 thrift banks and 80 of 406 rural/cooperative banks showed that 48.3 percent of surveyed banks have optimistic views on the economic prospects, higher compared to 35.4 percent in end-December 2020.

Of the 48.3 percent, about 25.2 percent said GDP will grow between six percent to 6.3 percent this year while 23.1 percent thinks it could be higher at seven percent. The government’s 2022 GDP target is 6.5 percent to 7.5 percent. The GDP grew by 7.4 percent in the second quarter, slower compared to 8.2 percent in the first quarter this year.

Amid banks’ mixed levels of optimism on the country’s economic prospects, the overall outlook for the banking system remains stable, the BSP reported.

Basically, the BSOS provides insights of bank management on the strategic direction of the industry and emerging risks and trends. The BSP said the survey is part of its surveillance toolkit in promoting the resilience of the banking system. The total assets of respondent banks accounted for 94.4 percent of the total assets of the Philippine banking system as of end-December 2021.

Based on the latest survey, banks expect the banking system to continue to be resilient with 66.2 percent projecting stable banking system in the next two years. About 32.4 percent expect an even stronger industry. But, there is a small number of banks or about 1.4 percent of those surveyed, that expect a weaker banking system this year and in 2023.

The big banks or the universal/commercial banks are the most optimistic group while the BSP said thrift banks and rural/cooperative banks have a more subdued outlook.

About 70.7 percent of surveyed banks estimate double-digit growth in their loan portfolio in the next two years. “The progress in the country’s vaccination program and better growth prospects are expected to sustain loan growth as this would lead to consumer and business confidence and higher loan demand,” said the BSP.

Meantime, 57.3 percent of surveyed banks said the industry non-performing loan (NPL) ratio will likely stay above five percent in the next two years. The survey result is lower than 63.5 percent same time in 2020. About 42.7 percent of respondents project an NPL coverage ratio in the range of 51 percent to more than 100 percent.

The BSP noted mixed projections on restructured loans with 30.1 percent of surveyed banks estimating a restructured loan ratio of more than five percent. About 23 percent expect a more conservative restructured loan ratio of one percent to two percent because of banks’ relief measures given to their borrowers.

The BSOS results also showed banks’ optimism about deposit growth funding asset with 62.6 percent projecting double-digit deposit growth. More banks are also upbeat when it comes to their profitability with 77.6 percent eyeing double-digit net income increase for the next two years.

“Amid the long tail of the COVID-19 pandemic, the Philippine banking system is projected to withstand the legacy risks and challenges of the COVID-19 pandemic within the next two years on account of its stable and sound capital and liquidity buffers, ample loan loss reserves, good earnings performance and prudent risk governance,” said the BSP.

In the survey, all banks indicated their intention to maintain an adequate level of liquidity buffer, supporting expansion in their lending and investment activities in line with the country's economic recovery.

To ensure their business strategy will succeed, banks vow to continue improving and updating their digitalization programs and implementation.

“Banks disclosed that digitalization of products and services will be prioritized in the next two years, as banks recognize the need to integrate technology in achieving their business objectives. Even prior to the pandemic, banks have been striving to better serve their clientele by making some of their products and services accessible through digital platforms. In line with this, majority of (big banks) have already adopted programs on digitalization and implemented initiatives to improve their capabilities in this area,” noted the BSP.

BSOS results showed that 39.3 percent of banks are right on schedule when it comes to being more digital while 27.3 percent said that they have not yet started their digitalization and are still in the planning phase.

As of end-2021, only 2.7 percent of the surveyed banks are ahead of schedule in terms of being more digital.

By banking group, 63.4 percent of big banks and 42.9 percent of thrift banks are right on schedule in their digitalization efforts while 47.3 percent of rural/cooperative banks are still in the planning stage.