BSP: PH economy can withstand pummeling by COVID

MANILA, Philippines—The Philippine banking system remained strong and resilient in the first half of 2021 despite the challenges posed by the COVID-19 pandemic, specifically the increase in bad loans and contraction in credit, according to the central bank.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said an assessment of the strengths and sources of vulnerabilities of local banks, based on a set of financial soundness indicators, suggested that the system remained sound and stable even during the health catastrophe.

“In the first semester of 2021, the banking system displayed continued growth in assets and deposits and posted sufficient capital and liquidity buffers,” BSP Governor Benjamin Diokno said. “This enabled the banking system to support the country’s financing needs.”

These findings were outlined in the latest report on the Philippine financial system which also highlighted the performance of the foreign currency deposit system, trust entities, quasi-banks, and other non-bank financial institutions during the period under review.

In addition, Diokno noted that the acceleration of digital transformation “reinforced banks’ continued delivery of financial products and services during the pandemic.”

The regulator said that, given the continuing uncertainty posed by the global pandemic, it will continue to monitor risks and vulnerabilities that may put undue pressure on the financial system.

The agency said its regular analysis of the banking system will be complemented by initiatives aimed at strengthening risk governance, promoting responsible innovation, and advancing the sustainability agenda for the country.

This latest review was consistent with the results of the latest banking industry survey which showed that credit outlook remained positive with double-digit growth seen in the next two years.

As of end-July 2021, total loans declined by a slower rate of 0.4 percent year-on-year to P10.8 trillion as of end-July 2021 compared to the 5 percent decline in 2020.

Diokno said the positive performance of the Philippine banking system “is evidenced by sustained growth in its assets, deposits, and capital, as well as ample capital and liquidity buffers and loan loss reserves.”

Based on end-July 2021 preliminary data, banks’ total assets grew by 5.4 percent year-on-year to P19.8 trillion.

More recently, the BSP reported that loan activity at the country’s largest banks grew for the second straight month in September, lending credence to the central bank’s assertion that the financial system has turned a corner after being ravaged by the pandemic.

Preliminary BSP data showed that outstanding loans of universal and commercial banks, net of their short term loans to the regulator, rose by 2.7 percent year-on-year in September.

This was faster than the 1.3-percent expansion in August, and marked the second month of growth since the eight straight months of loan contraction that began in December 2020 as both borrowers and lenders shied away from credit due to pandemic-related uncertainties.

TSB