HSBC: Banking sector buoyed by upbeat trade, investment flow

CEBU, Philippines - The banking industry is getting a boost from the robust economic growth and increasing trade and investment flows, according to Hongkong and Shanghai Banking Corp. (HSBC).

"Buoyant economic growth and increasing trade and investment flows mean more demand for commercial banking, trade financing, and investment banking services," HSBC Philippines President and CEO Wick Veloso told The FREEMAN in an email interview.

“The strong growth environment and the reform-minded government should help the banking industry further," the bank executive said.

Room for growth

Veloso noted that liquidity in the Philippine banking system is abundant and that the country has the lowest system-wide loan-to-deposit ratio in the Southeast Asian region.

"Infrastructure expenditure from both public and private sources should support loan growth, as should the large segment of the population that is untapped in terms of banking penetration," Veloso explained.

The HSBC executive also mentioned the low household debt levels which suggest that there is room for consumer financing to grow as well.

HSBC said the story of the Philippines remains strong, being it one of the fastest growing economies in Asia.

"This is what makes the economic attractive to the banks," the CEO said.

Optimistic

“HSBC remains optimistic with the new administration. It has laid down a promising 10-point economic program with focus on accelerating infrastructure spending, increasing competitiveness and ease of doing business in the country, among others," he said. 

“According to government sources, infrastructure is going to be a priority and the expected spending will possibly provide sufficient economic activity that will slightly increase inflation but at very decent levels. The domestic financing of the government may increase, but we do not see this as an issue given the Philippines’ excess liquidity," Veloso added.

The Duterte administration's 10-point economic program could make the Philippines an attractive investment destination although there are currently few restrictions on investment, he said.

In a July 29 research note, Joseph Incalcaterra, economist at HSBC, said the key change in the economic policy of the new government is on the fiscal side.

"In particular, the government will target a 3 percent deficit compared to 2 percent previously, and ramp up infrastructure to 5.2 percent of GDP," Incalcaterra said.

The economist also cited the government's plan to pursue a comprehensive tax reform to lower both corporate and income taxes while closing loopholes in the tax system. (FREEMAN)