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Banks see wholesale/retail recovering fastest among hard-hit industries

Bankers said wholesale/retail will recover the fastest among the industries most heavily affected by the lockdown, while accommodation services and transport could take up to two years, according to a survey conducted by the Bangko Sentral ng Pilipinas (BSP) in the second half of 2020.

The BSP’s Banking Sector Outlook Survey (BSOS) also showed a consensus held by 65% of those surveyed that overall growth in the next two years could drop below 6% in the worst case, with 6.3% the other end of the range. This view represents a slight softening from the year-earlier survey consensus of 6-6.3%.

“Banks observed that the wholesale and retail trade sectors will be the fastest to recover in the next six months to one year. Transportation sector will take the longest time of about two years, while accommodation sector will take around one to two years to fully recover,” according to the survey findings, issued Friday.

The survey found that 68.8% of those surveyed expect the domestic banking system to be stable in 2021-2022, while a minority of 25%, mainly foreign lenders, expect a strong rebound during the period.

In the year-earlier survey, only 0.8% of respondents expected the banking system to strengthen over the near term.

“Banks’ positive economic outlook translated to renewed confidence in the stability of the banking system… The news of a high efficacy (more than 90%) of the COVID-19 vaccines, being developed and soon to be rolled out by leading pharmaceutical and biotechnology companies, partly buoyed banks’ risk-on sentiment,” it said.

The survey asked presidents, chief executive officers and country managers of universal, commercial, thrift, rural and cooperative banks about their outlook on the banking industry and the overall economy, considering the impact of the pandemic. The latest BSOS was the fourth since its launch in October 2018.

Around 60% of the respondents said they expect double-digit growth in their assets due to the prospects for an economic recovery, less than the 70% in the previous survey.

Some 71% of the banks also projected double-digit growth in their loan portfolio and deposits over the next two years.

Around 70% of lenders also expect net income to increase in the double digits, less than the 80% in the 2019 survey.

Estimates for return on equity were subdued, with 33% of bankers projecting less than 5%, compared to 11.3% previously.

“The slowdown in economic activities may have exerted pressure on the quality of bank loan portfolios. This could be seen in the increase of respondents expecting the ratio of non-performing loans (NPL) to total loans to exceed 3% in the next two years to 81.3% (of respondents) during the second semester of 2020 from the 67.4% in the previous survey,” the BSP said.

The central bank also surveyed the bankers on their projections for volume of restructured loans relative to their total loan portfolio, a new indicator included in the survey to measure 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.”

It said 54.4% of the banks, mostly thrift banks, foreign banks, and rural and cooperative banks, estimated a restructured-loan ratio of 3% to more than 5% in the next two years, while 39%, mainly universal and commercial lenders, gave a range of less than 1% to 3%.

The survey also found that 49% of the respondents expect their NPL coverage ratio to hit 25-50% while 44.3% gave an estimate of 51-100%.

“In terms of products or services, the majority of the heads of banks mentioned that corporate and retail banking will be their top most priorities, followed by payments and settlement services, cross-selling, and trade financing,” the central bank said.

It added the top two strategic priorities of the banking sector are to grow their businesses and maximize the growth potential offered by technology. — Beatrice M. Laforga

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