Connect with us

Hi, what are you looking for?

Economy

2021 recovery crucial for banks — S&P

S&P Global Ratings expects the Philippine economy to shrink by 9.5% this year, before growing by 9.6% in 2021. — PHILIPPINE STAR/MIGUEL ANTONIO N. DE GUZMAN

A DEEPER-THAN-EXPECTED recession in the Philippines will increase the downside risks for the banking industry, S&P Global Ratings said.

“This year’s recession is likely to impair the debt-servicing ability of consumers, small businesses, and leveraged companies. The extent of the impact on banks depends on the economic recovery and stabilization of credit conditions in 2021,” S&P analyst Nikita Anand said in a note on Tuesday.

Ms. Anand said Philippine banks are facing a negative economic risk trend, as the economy remained in a recession in the third quarter. Gross domestic product (GDP) shrank by 11.5% in the July to September period, slightly easing from the record 16.9% decline in the second quarter as lockdown restrictions gradually loosened amid the coronavirus disease 2019 (COVID-19) pandemic.

S&P expects the Philippine economy to contract by 9.5% this year, before growing by 9.6% in 2021.

“We expect operating conditions for banks and borrowers in the Philippines to improve only gradually, on the back of 9.6% growth in the economy in 2021. These projections assume an eventual flattening of the COVID-19 curve,” Ms. Anand said.

The government expects the economy to bounce back to 6.5-7.5% growth in 2021.

Ms. Anand said local lenders can absorb credit losses since its “good capital position (15% Tier-1 ratio) and more than 100% provisioning of NPLs provide a cushion against challenging operating conditions.”

But a longer recession than the S&P forecast “could result in substantially higher credit losses for Philippine banks,” Ms. Anand said.

“We expect the banking sector’s credit costs to stay elevated at 1.5%-2.0% of gross loans over 2020 and 2021 compared with the five-year average of 0.4%. The consumer, micro, and SME (small and medium enterprises) portfolios will contribute to higher NPLs (nonperforming loan) in the coming quarters,” she said.

“Large conglomerates, with their strong business profiles by domestic standards and good access to liquidity, are better placed to weather the storm. If the recession is longer or deeper than our forecast, this could set off sharper asset quality deterioration for banks, due to potential stress in large corporate books.”

As of end-September, the gross NPL ratio of the banking system hit 3.4%, as soured loans climbed 60% year on year to P364.672 billion.

The central bank expects the NPL ratio to reach 4.6% by end-2020. It reached 17.6% in 2002, the aftermath of the Asian Financial Crisis.

Ms. Anand also noted regulatory forbearance will only delay the true recognition of NPLs. Republic Act No. 1494 or Bayanihan to Recover as One Act provided for a one-time 60-day debt payment moratorium.

“The effect on individual banks in the coming quarters will be uneven, hinging on their exposure to vulnerable segments and their accounting and provisioning standards,” she said.

Banks’ recovery to pre-COVID-19 levels will likely stretch beyond 2022, Ms. Anand said. — Luz Wendy T. Noble

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

Investing

More than half of all Londoners have either started their own business or aspire to do so in 2023, compared to nearly a third...

Investing

The John Lewis Partnership has struck a £500m deal with the investment firm Abrdn to build 1,000 residential rental homes, redeveloping three sites already...

Investing

The first four scale-up visa licences have been approved by the Home Office three months after the scheme began, prompting lawyers to question the...

Investing

Barclays has been fined £8.4 million by the payments industry watchdog for failing to be transparent with retailers about the fees they were being...

Investing

Ministers have called on Britain’s biggest rail union to be “altruistic” and suspend strike action over Christmas and new year amid warnings that it...

Economy

Filipino writers, poets, and playwrights play an important role in countering and correcting falsehoods running rampant in an extremely polarized public sphere, said Dr....

You May Also Like

Investing

The minute that any question pops into your head, you can simply ask Google. No longer do we have to pour over books and...

Investing

Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...

Investing

Browsing history makes referring to sites and pages you’ve visited in the past seamless. It’ll help you recall what page you checked out on...

Investing

Insomnia is the most common sleep disorder in the global population. Therefore, it is a problem that many people suffer or have suffered throughout...

Disclaimer: SmartRetirementReport.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.