Bankers see robust growth in earnings in next 2 years

MANILA, Philippines — Banks expect a double-digit growth in earnings in the next two years due to higher net interest margins brought about by the aggressive rate hikes delivered by the Bangko Sentral ng Pilipinas (BSP).

Based on the First Semester 2022 Banking Sector Outlook Survey (BSOS), the BSP said 77.9 percent of the respondents expected double-digit net income growth for the next two years.

This was higher compared to the 74.4 percent of respondents in the previous survey.

About 47.4 percent of the surveyed foreign banks, 29 percent of thrift banks and 100 percent of digital banks viewed growth in their net income to be higher than 30 percent for the next two years.

On the other hand, universal and commercial banks were more conservative in their estimates, projecting deposit growth rate of higher than 20 percent.

“With the anticipation of improvement in the country’s economic condition, more banks set upbeat expectations on their profitability,” the BSP said.

Data from the central bank showed earnings of Philippine banks jumped by 37.5 percent to hit an all-time high of P309 billion last year from P224.75 billion in 2021, on the back of higher interest income and trading gains.

This erased the previous record high of P230.67 billion booked before the global health crisis in 2019.

Banks are projecting a rosier return on equity (ROE), with 33.1 percent seeing more than five percent. The banking groups were led by big, mid-sized and small banks wherein 40 percent are projecting an ROE of between five and 10 percent, while 62.3 percent of foreign banks are seeing a smaller ROE of below five percent.

According to the BSP, projections of net interest margin (NIM) were more promising as 66.2 percent of respondents estimated their NIM to fall between three and 20 percent in the next two years.

Big banks and foreign banks were quite conservative, with a majority expecting NIM of three to five percent and less than three percent, respectively. This is lower compared to the five to 10 percent projected by thrift, rural and cooperative banks, as well as the 30 percent projection of other banks.

Digital banks are expecting a net interest margin of less than three percent in the next two years.

All banking groups are projecting a 10 to 15 percent increase in deposit base as 70.6 percent of the respondents expect a double-digit deposit growth, while digital banks are seeing a 20 to 30 percent jump.

Most banks are projecting a 10 to 15 percent expansion in assets, while digital banks are seeing a five to 10 percent increase as the country continued its path toward economic recovery with the lifting of COVID-19 quarantine and lockdown protocols.

“The overall outlook for the banking system remained buoyant amid the slowdown in global economic activity and increasing commodity prices in the first half of 2022, following tightening in global financial conditions and the ongoing geopolitical tensions between Russia and Ukraine,” the BSP said.

The results of the latest survey showed that about 67.9 percent of respondent banks expected a stable banking system in the next two years, from 76.3 percent in the previous survey.

On the other hand, the remaining 32.1 percent projected a stronger banking system – a sharp increase from 5.4 percent in the prior survey.

“Pessimism seemed to totally dissipate as none (from 18.3 percent) of the respondents forecasted a weaker banking system in the next two years,” the central bank said.

As banks are expecting a double-digit rise in lending, more than half or 52.4 percent estimated a non-performing loan (NPL) ratio of above five percent in the next two years.

“With improving economic condition and recovery of credit activity, the loan quality is expected to be better in the next two years,” the BSP said.

About 50.4 percent of the respondent banks are also anticipating an NPL coverage ratio in the range of 51 to more than 100 percent in the next two years.

The survey among bank presidents, CEOs, and country managers of foreign banks conducted last June covered all big and mid-sized banks, 80 rural and commercial banks, as well as two digital banks.