BANKS are employing prudential strategies to weather the impact of the coronavirus pandemic, such as reducing exposures to segments deemed vulnerable and cutting operational costs, a report from the Bangko Sentral ng Pilipinas (BSP) said.
“Despite the immense economic disruption following the outbreak of COVID-19, decisive, time-bound and wide-ranging policy responses have helped to prevent a seizing-up of the banking system”, BSP Governor Benjamin E. Diokno said in a statement.
BSP’s Report on the Philippine Financial System for the First Semester of 2020 released Thursday said universal and commercial banks have been looking to minimize exposure to vulnerable sectors and to increase ancillary or fee-based activities.
“[Mean]while, thrift banks and rural and cooperative banks plan to fast track digitization initiatives to reduce operating expenses,” it said.
Higher credit provisions amid the crisis took its toll on the industry’s profitability, as the banking system’s net profit shrank 22.5% year on year to P86.5 billion as of end-June, reversing the 27.7% growth in earnings in the same period of 2019.
“Other income sources are expected to slow down due to lower volume of transactions, waiver of inter-branch and interbank fees as well as the temporary grace period moratorium on the imposition of bank fees, penalties and charges under the [Republic Act No. 11469 or] Bayanihan Act,” the BSP said.
Based on a central bank survey, lenders are eyeing to do cost-cutting measures such as deferred capital spending and freeze hiring of non-critical positions to mitigate the impact of the pandemic on their profitability.
They are also looking to intensify loan collection activities and monitoring, exercise prudence in credit disbursement, reduce cost of funds, and market new loans and deposit products.
Lenders are also expecting muted overall credit demand despite the reopening of business activities as the lockdown was eased. Surveyed banks believe their gross total loan portfolio will “grow modestly” by the end of the year.
Due to the impact of the crisis on households and businesses, the central bank expects non-performing loans (NPL) to reach 4.6%, still better compared to the 17.6% level in 2002 in the aftermath of the Asian financial crisis.
In the first half of the year, the increase in soured loans was fuelled by sectors such as real estate, wholesale and retail trade. Consumer loans also contributed to the growth in bad loans, the report said.
The industry’s NPL ratio stood at 2.84% or P304.98 billion of the P10.7-trillion total loan portfolio as of end-August. This rose from the 2.7% ratio seen as of end-July. — LWTN