While it has largely shown resilience with the help of observed strong economic fundamentals, banking in the Philippines has nonetheless felt the impacts of the coronavirus disease 2019 (COVID-19) pandemic and is moving forward at pace with the transitions and accelerations occurring in the ‘now normal’.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno noted that three core strengths of the Philippine banking system contributed to the sustained strength and resilience of the country’s banking sector.

Mr. Diokno first noted the banking industry’s strong capital position. “It posted stable capital adequacy ratios (CAR) at about 15.0% in the past 10 years, which is well above the 10.0% minimum threshold set by the BSP and 8.0% minimum set by the Bank for International Settlements,” he said in a keynote in a webinar of the Joint Foreign Chambers of the Philippines earlier in March.

As of end-September 2020, Mr. Diokno noted, the risk-based capital adequacy ratio of the universal and commercial banking (U/KBs) industry stood at 17.2% on a consolidated basis.

Another strength Mr. Diokno noted is the banks’ ample liquidity buffers, which enable banks to withstand short-term liquidity shocks and to provide adequate stable funding in the medium term.

Stability in the liquidity position of U/KBs was shown as of end-November 2020, with a liquidity coverage ratio (LCR) of 201.0%, double the regulatory minimum of 100.0%. Meanwhile, the minimum liquidity ratios (MLR) of stand-alone thrift, rural and cooperative banks continued to exceed the regulatory minimum requirement.

Completing those core strengths are the expanding assets of banks on the back of increasing deposit liabilities, with a recorded growth of 6.1% year-on-year to ₱19.4 trillion as of end-December 2020.

Alongside such resilience, nonetheless, Philippine banks felt several impacts from the pandemic and are embracing the concerns it has accelerated.

A book recently published by the central bank, titled BSP Unbound: Central Banking and the COVID-19 Pandemic in the Philippines, noted the following impacts of the pandemic on banks: banks adjusting their daily operations alongside intensified off-site surveillance and monitoring of risks and vulnerabilities; bank deposits growth remaining relatively firm and funding cost declining following reduction in reserve requirements; banks becoming “shock absorbers” as loans slowly expanded; loan quality across banking groups manageably weakening as allowance for credit losses picked up; financial assets taking a hit due to additional loan provisioning; net income diving as additional provisioning rises; and liquidity and capital buffers remaining intact.

Within these impacts, a large role has been taken by digitalization as a reshapers for banks. “Majority of the banks’ board members and senior managers continued their oversight function and addressed emerging concerns through the use of technology. The survey also shows that the top priorities of BSFIs are the pursuit of digitization initiatives and management of possible deterioration in asset quality,” BSP’s book noted.

Moreover, the firm growth of bank deposits was attributed to consumers’ shift to digital payments.

“[A]n apparent shift in the use of digital financial platforms was observed following the [quarantine] From the third week of March 2020 to end-April 2020, FSS data showed that around 4.1 million digital accounts were opened among banks and non-bank electronic money issuers while the volume and value of check payments and ATM withdrawals significantly declined.”

Mr. Diokno also noted a dramatic surge in the volume and value of digital payment platforms such as PESONet and InstaPay. “The volume of PESONet transactions surged by 1,582% while the value of transactions increased to P366.6 billion as of end-2020,” the BSP governor shared in his keynote.

“Similarly, the volume of InstaPay transactions rose exponentially to 30.6 million as of end-December 2020 from just 1,740 in April 2018. The total value of InstaPay transactions reached P176.5 billion in December 2020 from P20 million in April 2018,” he added.

Another notable way in which banks are being reshaped by the pandemic is the accelerated bend towards sustainability, especially that climate change has reportedly worsened.

Back in April last year, the central bank released a sustainable finance framework that directed banks to adopt sustainability principles through environmental and social risk management systems as well as in their governance frameworks, strategies, and operations. A three-year transition period is given for banks to adopt.

In a BusinessWorld report last July, BSP Managing Director for Policy and Specialized Supervision Lyn I. Javier said the framework reminds banks of the financial losses they could incur due to climate change-related factors.

“It’s like managing any ordinary risk that they have. For instance, the frequent and more serious typhoons that we are experiencing could affect their credit and operational risks,” Ms. Javier was quoted as saying.

Mr. Diokno, meanwhile, said that banks can further take advantage of the opportunity offered by green or sustainable projects by offering other sustainable finance instruments like green deposits, green and social loans, and sustainability-linked bonds. — Adrian Paul B. Conoza