Banks bullish despite tougher competition

Philippine banks are bracing for even greater competition among themselves by investing in technology, while improving risk management systems to defend against possible external shocks, the latest survey of the Bangko Sentral ng Pilipinas showed.

In its second Banking Sector Outlook Survey, most of the country’s formal financial institutions said they would also intensify client relationships, upgrade personnel capabilities, keep a high level of liquid assets and increase capitalization to protect themselves against sudden market downturns.

“The respondents recognize the importance of capital to protect the banks from unexpected losses,” the central bank survey concluded. “A majority project capital adequacy ratio (CAR) at more than 16 percent, or significantly higher than domestic and global standards.”

Banks also intend to backstop their respective CAR with strong leverage ratios that will promote institutional stability.

Specifically, 51.6 percent of the respondents projected leverage ratios at more than 10 percent. Most banks are expected to maintain strong liquidity positions to be able to thrive despite market volatility.

Despite these worries, the survey revealed that Philippine banks maintained their optimism on the country’s economic prospects as 81 percent of respondents expected the domestic economy to grow between 6 and 7 percent within the next two years.

The outlook on the Philippine banking system remains stable for 70.2 percent of all respondents, with the rest mostly expecting a stronger banking system. Seventy-two percent of respondents expect double digit growth in assets and deposits, while 81 percent and 92.4 percent expect loans and profits to grow more than 10 percent, respectively.

The respondent firms — which include all of the country’s universal, commercial and thrift banks, as well as the 20 largest rural and cooperative banks — also stressed that certain BSP regulations presented challenges, top of which were compliance requirements with the mandatory credits to the farm sector and small businesses.

Universal and commercial banks were most eager to expand market coverage with 75.8 percent and 84.4 percent of respondents projecting double digit growth in assets and loans, respectively.

In the meantime, 76.9 percent of rural and cooperative banks, ahead of other bank types, aim to grow deposits by 10 percent or more. Thrift banks are most optimistic on their profit outlook as 97 percent of respondents were anticipating double digit growth in net income.

To realize the expected bank growth, the respondents set the following strategic priorities for their operations: to grow the bank; optimize use of available technology and to protect the bank. Meanwhile, the use of technology is expected to reshape the future landscape of the banking system as 73.5 percent of banks have plans to use technology in their transactions in the near term.