MANILA, Philippines — Top banking executives are bullish on the prospects for the country’s banking industry this year amid the projected faster economic growth as well as the easing cycle by the Bangko Sentral ng Pilipinas (BSP).
Philippine National Bank president and chief executive officer Jose Arnulfo “Wick” Veloso said monetary authorities led by BSP Governor Benjamin Diokno have tamed inflation and boosted liquidity via the reduction of the level of deposits banks are required to keep with the central bank.
“Fasten your seatbelts as the Philippine economy will experience a tremendous growth opportunity in 2020. The BSP has tamed inflation and is expected to further reduce the reserve requirements,” Veloso told The STAR.
Economic managers penciled a gross domestic product (GDP) growth of between 6.5 and 7.5 percent this year from the projected six to 6.5 percent last year.
The GDP expansion fell short of the target and averaged 5.8 percent from January to September last year despite accelerating to 6.2 percent in the third quarter after slumping to a four-year low of 5.5 percent in the second quarter.
The slower-than-expected GDP growth last year could be attributed to the soft global markets amid the US-China trade war, the tightening cycle by the BSP in 2018 that saw interest rates jump by 175 basis points, as well as the impact of the delayed implementation of the 2019 national budget.
However, the benign inflation and slower GDP growth allowed the central bank’s Monetary Board to slash interest rates by 75 basis points last year, partially unwinding the tightening cycle in 2018, and lower the reserve requirement ratio for big and mid-sized banks by 400 basis points and for small banks by 200 basis points to free up more funds to boost the economy.
Veloso said the easing cycle by the BSP would allow the government to further boost infrastructure spending across the country.
“We have a young population with an average age of 24. PNB is positioned to support its customers who are capturing opportunities. We see growing demand for food, power, water, housing, infrastructure, health services and education across the archipelago,“ Veloso added.
Furthermore, the PNB president said technology would make banks more efficient and play a big part in the delivery of basic services in the retail space.
“Banks will continue to innovate accordingly to address the payment, investment and borrowing needs of their customers,” Veloso said.
Edwin Bautista, president and CEO at Union Bank of the Philippines, said Philippine banks could expect improved net interest margins this year after Diokno signaled at least another 50 basis points rate cuts this year.
“As the governor has signaled a minimum cut of 50 basis points, we should see net interest margins improving. Loan growth is also expected to accelerate as the government catches up on Build Build Build program fueled by higher liquidity in the system and lower interest rates,” Bautista added.
The Duterte administration has committed to spend between P8 trillion and P9 trillion to bankroll massive infrastructure projects under the program until 2022.
Bautista said regulatory risks to the banking industry include the lending rate cap for consumer loans as well as potential issues on the taxes on foreign currency deposit units (FCDUs) as well as proposed Passive and Financial Intermediary Act (PIFITA) bill.
Bank of the Philippine Islands president and CEO Cezar “Bong” Consing told The STAR banks are expected to focus on core businesses this year.
“2020 will probably see the industry focus on core income generated by growth in loan volume and transaction fees. Trading results will depend on the opportunities that the market will present,” Consing said.
The result of the latest BSP Banking Sector Outlook (BSOS) showed 88 percent of the respondents for the first semester of 2019 forecasted double-digit net income growth for the next two years, higher than the 83.3 percent during the first semester of last year.
Around 90 percent of big- and mid-sized bank respondents projected double-digit net income growth, while only 76.9 percent of small banks forecasted double-digit profit growth.
More specifically, around 30 percent of universal and commercial, thrift, and foreign banks projected net income to grow between 10 percent and 15 percent over the next two years.
The banking industry remained optimistic about their net income amid the projected tighter net interest margin with 44.9 percent of the respondents expecting a margin of less than three percent and 23.1 percent forecasting a margin of between three and five percent.
Latest data from the central bank showed the nine-month 2019 profit of Philippine banks grew by 29 percent to P169.46 billion from a year-ago level of P131.53 billion.
“2019 saw an increase in banking industry profits, as strong trading results complemented core income growth,” Consing said.
Consing, who is also vice chairman and president of BanNet, added the on-time passing of the national budget coupled with possible interest rate easing by the BSP would be supportive of the banking industry and overall GDP growth.