Banking sector seen to continue growing

PROSPECTS for the local banking sector remain bright as the industry branches out to previously-untouched areas of the country to expand.

Brokerage firm Maybank ATR Kim Eng said the industry’s growth would receive a boost from the country’s strong macroeconomic fundamentals. Individual lenders also remain well-capitalized and are enjoying improved asset qualities as bad loans decline.

However, while the industry is expected to flourish, individual banks may struggle in expanding given the tightening of capital requirements.

“The Philippine banking sector is expected to benefit from the country’s strong macroeconomic growth that will further strengthen credit demand,” the brokerage firm said in a report on Thursday.

This comes amid a benign outlook on inflation and interest rates, abundant liquidity, as well as continued inflows from overseas remittances and the business process outsourcing industry.

The firm said it was expecting operating profit growth to pick up to 11.4 percent this year from an 11-percent decline in 2014, on the back of loan expansion, steady interest rates, and a slight recovery in non-interest income.

Net profit growth is seen at 14 percent in 2015 on lower credit cost assumption, up from 3 percent in 2014. Maybank expects average return on equity to be stable at 11.3 percent in 2015 from 11.4 percent in 2014.

There remains significant room for growth for local banks, that remained absent in over a third of cities and towns across the country, Maybank said.

“The Philippines is severely underbanked, with only 27 percent of Filipinos having a bank account,” it said.
Expansion in the countryside, Maybank said, might lead to higher costs for banks, but this could be offset by a decline in loan loss reserves as non-performing assets continue to decline.