Growing prime-age population to boost PHL banks

THE PHILIPPINE banking system will likely benefit from fast-growing prime-age populations, Moody’s Investors Service said, flagging concerns on proximity to lenders as a key hurdle to penetration.
In a report on Tuesday, the global debt watcher said the growth in the country’s young population will be an opportunity for banks in the Philippines, alongside India and Indonesia.
“Countries where income is growing fast along with prime-age populations while dependency ratios are declining will benefit the most from demographic changes. India, Indonesia and the Philippines fit this bill,” Moody’s said in a report sent via e-mail.
According to Moody’s, the country’s prime-age population, or people aged 25-64, will grow by 28% between 2017 and 2030, the fastest growth among 17 Asia-Pacific economies surveyed.
The report added that the Philippines’ total dependency ratio, or the number of people below 15 and above 65 per 100 people, will shrink by two percentage points from last year to 2030.
“[B]anks in India, Indonesia and the Philippines will see growth opportunities in the same period from the effects of rapidly growing prime-age populations and declining proportions of working people,” Moody’s Senior Vice-President Christine Kuo was quoted as saying in a separate statement.
In contrast, Ms. Kuo added that banks in Japan, Hong Kong, Korea and Taiwan will “face challenges” brought by the dwindling working population. These lenders may try to offset the effects of aging customers through price competition and cost management.
The people in the prime age group are considered as banks’ core customers since they are more likely to avail of more profitable banking products and services such as credit cards, personal loans and mortgages, which can translate to more profits for these lenders.
With this growing pool of core clients, Philippine banks can maximize this as income levels are also rising.
“Assuming income growth will continue at the pace of the past five years, we estimate per capita [gross domestic product] on a purchasing power-parity basis will reach about $24,000 in Indonesia and $18,000 in India and the Philippines by 2030,” Moody’s added.
Despite this, the credit rater said the accessibility of bank offices is a “key obstacle” to banking penetration.
Citing a 2017 World Bank-Gallup poll, Moody’s noted that 29% of Filipinos do not have a bank account, with lack of proximity cited as the main reason they are not part of the formal financial system.
“Digital products and services will enable banks in the two markets (Philippines and Indonesia) to break the barrier and capture a significant number of new customers in the coming decade.”
While formal account penetration remains low, the Bangko Sentral ng Pilipinas said in its latest Financial Inclusion Survey that there are opportunities for greater financial inclusion enabled by digital technology given the high smartphone penetration and internet adoption in the country. — Karl Angelo N. Vidal