The chief of local banking giant Bank of the Philippine Islands (BPI) expects 2019 to be a better year for the domestic economy and the banking system, given the softening global oil prices and government initiatives to curb food supply bottlenecks.
BPI, for its part, would likely grow its loan book at the teens level next year in line with the more upbeat prospects for the domestic economy, the bank’s president Cezar Consing told reporters in an informal chat on Thursday.
“I actually think that 2019 could be a better year for the economy because if you look at 2018, we were faced with high oil prices and high food prices and so that raised inflation which the central bank had to respond to by raising rates,” Consing said.
To curb rising inflation, the Bangko Sentral ng Pilipinas (BSP) jacked up interest rates five times this year for a total of 175 basis points.
Congress has also passed the rice tariffication bill, which aims to lift quantitative restrictions on rice imports and replace it with a levy. The liberalization of rice importation is seen to ensure adequate supply of rice, thereby avoiding another spike in prices.
“The central bank said early on that inflation is coming down and I think they are right,” Consing said.
“When you think of the combination of oil prices having come off now and with the interventions done by the government on the food side, the inflationary pressures are probably less, so inflation should probably begin to taper off and if inflation begins to taper off, the pressure to raise interest rates will subside a little bit and I think it will be better for the economy as a whole,” Consing said.
The monetary tightening sanctioned by the BSP this year also failed to temper BPI’s loan quality, he said. He noted BPI’s loan book consisted of quality borrowers. Add to this, he said the economy had enough capacity to absorb the interest rate increases.
“If rates went up by 200 to 300 basis points, [then] I don’t know,” he said.
He said the bank could still grow its loans at the teen levels next year. “It may not be the same pace as in the last four to five years, but it will still be a healthy growth,” he said.
BPI grew its third-quarter net profit by 12 percent year-on-year on improved margins, allowing the bank to offset the earnings contraction seen in the first semester. This brought the January to September profit to P17.01 billion, flat from the previous year but an improvement from the first half, when profit went down by 5.7 percent year-on-year to P11.03 billion.
The bank grew its loan book in the nine months to September by 12.9 percent year-on-year to P1.27 trillion. Meanwhile, net interest margin steadily increased to 3.24 percent in the third quarter, from 3.1 percent in the second quarter, and from 2.91 percent in the first quarter.
“I’m feeling a lot better about the trajectory of the economy compared to a few months ago because our fear was policy rates would continue to go up because inflation continues to go up. With oil prices going down and government intervention, we can be more optimistic,” Consing said.