THE COMING YEAR will likely remain challenging for Philippine banks as they may face continued tepid loan growth and downside risks to profitability, an analyst from a debt watcher said.
“Loan growth will likely be muted in 2021 as the banks cautiously navigate the challenging economic environment,” Joyce Ong, an analyst at the Financial Institutions Group of Moody’s Investors Service, said in an e-mail.
Banks continued to impose tighter lending standards as of the third quarter to guard themselves against soured debt, a study from the Bangko Sentral ng Pilipinas (BSP) showed.
Despite record low interest rates amid aggressive policy easing, credit growth remained sluggish due to these stricter standards and with borrowers’ confidence remaining low amid the coronavirus pandemic. Outstanding loans by universal and commercial banks rose 2.4% in September, the slowest pace since the 2.4% recorded in June 2007.
Meanwhile, asset quality has also deteriorated. The banking industry’s nonperforming loan (NPL) ratio stood at a seven-year high of 3.4% at end-September, the highest since the 3.42% logged in May 2013. This, as bad loans surged 60% year on year to P364.672 billion from P227.504 billion.
Allowance for credit losses set aside by Philippine banks surged 60% to P334.57 billion as of September from P209.069 billion a year ago. In the coming year, Moody’s expects credit loss provisions in the Association of Southeast Asian Nations (ASEAN) to decline from the high levels seen this year.
“We expect credit costs to remain elevated as problem loans continue to increase in 2021 after the end of the second credit grace period,” Ms. Ong said.
Republic Act (RA) No. 11494 or the Bayanihan to Recover as One Act (Bayanihan II) provides a one-time 60-day loan moratorium following the initial debt relief under Bayanihan I (RA 11469).
Ms. Ong added that banks will continue to face profitability pressures in the coming year.
“We do not expect to see a repeat of the significant trading gains recorded in 2020. Low interest rates will erode loan yields, but this will be somewhat offset by the corresponding decline in funding costs,” she said.
The Philippine banking industry’s net profit reached P123.431 billion in the first nine months of the year, declining by 28% from the P171.162 billion logged in the comparable year-ago period, BSP data showed. — L.W.T. Noble