Local banks remain resilient amid pandemic — economist

MANILA, Philippines — The domestic banking sector is proving to be resilient in any economic condition, defying the broad-based decline across sectors  amid the pandemic, an economist of the Ateneo de Manila University said.

In an economic forum hosted by the Economy and Environment Group Philippines, Ateneo economist Cielito Habito, a former socioeconomic planning chief, noted that as of the second quarter, when almost all sub-sectors under the services component of the economy registered double-digit declines, this was defied by strong growths of 6.6 percent and 6.8 percent in the information and communications technology and financial and insurance activities, respectively

Specifically, the strong performance in financial activities was driven by the 18.5 percent growth in banking services when the economy contracted by a record 16.9 percent in the second quarter. In the third quarter, banking services grew by 13.7 percent despite prevailing economic conditions.

“So this tempts me to say that the banking sector really is in such a good place. In fact, they thrive through thick and thin in the economy,” said Habito.

Growth in the banking sector, he noted, has consistently been above the average growth of the economy in more than 15 years.

At an average gross domestic product (GDP) growth of 5.8 percent from 2004 up to 2019, banking services grew by 9.5 percent.

At the slowest pre-pandemic growth of 0.9 percent in 2009, the domestic banking sector grew by 10.1 percent.

Among the largest banks in the country, before the provisioning for bad loans, profits in the first half of the year rose by 33 percent for BDO, 61 percent for Metrobank, 95 percent for BPI and 120 percent for Security Bank.

As the pandemic wears on, however, banks have been limiting exposures to sectors that may hit their bottomlines.

They are also postponing further capital expenditure and are being more selective in granting loans.

The government wants to leverage the strength of banks to usher in recovery amid the pandemic.

Through the proposed Financial Institutions Strategic Transfer (FIST) Act, banks can more easily dispose of non-performing loans and assets to free up capital and enable them to extend more credit to businesses.

Habito noted during the forum, however, that it is equally important for the government to put cash directly into the hands of consumers and businesses via subsidies because even if the financial resources of banks are freed, lending and consumption will continue to be diminished.