Banking system’s strength to support economy

THE PHILIPPINE banking sector’s continued strength can provide a catalyst for economic activity, the Bangko Sentral ng Pilipinas (BSP) said.

This comes amid dismal growth prospects in the near term, as lingering governance concerns due to a corruption scandal involving state infrastructure projects have dragged both public and private investments.

Philippine banks’ assets and deposits have seen sustained growth, showing the industry’s resilience, the BSP said in a report. “The banking system remains strong to support economic activity.”

The latest data showed that as of October, the Philippine banking system’s combined assets grew by 7.13% year on year to P28.292 trillion amid stable loan growth and deposit inflows.

Banks’ assets are mainly supported by loans, deposits, and investments.

Central bank data also showed that deposits went up by 6.96% year on year to P20.82 trillion as of October from P19.465 trillion.

“The year-on-year expansion in banking assets largely reflects steady loan growth to households and businesses, improved deposit inflows as confidence normalized, and higher holdings of government securities that boosted balance sheets earlier in the year,” Robert Dan J. Roces, an economist at SM Investments Corp., said in a Viber message.

“Looking ahead, asset growth should remain positive but more measured, supported by easing inflation, gradual rate cuts, and continued credit demand, even as banks stay selective and manage duration and liquidity risks more conservatively,” he said.

The BSP added in the report that banks have stable asset quality and adequate capital buffers.

“Lending by U/KBs (universal and commercial banks) also increased further, providing necessary funding for the country’s expanding economic activity.”

Bank lending has posted double-digit growth since May 2024. However, the latest BSP data showed that big banks’ loans to businesses and individual consumers expanded at its slowest pace in 16 months in October, rising by 10.3%.

“Moreover, banking policies during the review quarter were implemented to strengthen the regulatory environment and enhance the operational resilience of the financial sector,” the BSP said.

These include amendments to director and officer disqualification rules, the adoption of the Global Master Repurchase Agreement (GMRA)-based repo and reverse repo agreements, as well as the policy on daily cash withdrawal limit further strengthened the banking sector.

In late 2024, the BSP implemented the GMRA, enabling it to supply bonds to banks during repo transactions as part of its monetary policy tools.

Meanwhile, it issued a circular in mid-September imposing a P500,000 daily ceiling on cash withdrawals as an anti-money laundering measure amid the recent corruption scandal.

The policy limits withdrawals by accountholders to a maximum of P500,000 or its equivalent in foreign currency at once or via multiple transactions within one banking day.

Economic managers have conceded that the 5.5%-6.5% target for the year is now unattainable after the third-quarter gross domestic product (GDP) print slumped to a four-year low of 4% amid the ongoing flood control controversy.

BSP Governor Eli M. Remolona, Jr. this month said GDP growth could slow further to 3.8% this quarter. This would bring the full-year average below 5% versus the government’s full-year goal.

The BSP chief said that they expect the economy to recover by the second half of 2026, with growth seen moving closer to the government’s 6-7% target only by 2027. — K.K. Chan