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Bank chiefs offer optimistic outlook despite uncertainty

PHILIPPINE banks are optimistic about the outlook for business recovery this year despite uncertainty arising from the Russia-Ukraine war and the upcoming election.

BDO Unibank, Inc. President and Chief Executive Officer Nestor V. Tan said the bank expects profit to grow by 5-10% this year, after the good start seen in the first three months.

Mr. Tan said loans are projected to expand by 8-12% amid the relative stability of the markets, and normalization of asset quality and delinquencies.

BDO, the country’s largest bank by assets, on Friday reported net profit increased by 13% year on year to P11.7 billion in the first quarter.

Despite the improvement seen in the economy as restrictions eased, Mr. Tan said there is still a “mixed outlook” for 2022 due to local and international developments.

“Mobility is back. However, inflation remains a worry driven by supply chain disruptions and due to geopolitical conflicts,” Mr. Tan said at the bank’s annual stockholders’ meeting held on Friday.

Metro Manila and most provinces have been under the most lenient Alert Level 1 since March as coronavirus disease 2019 (COVID-19) infections have declined. This allowed more businesses to resume full operations.

Central bank officials said the impact of the Russia-Ukraine war on the country will be seen through higher inflation as oil prices surge. Headline inflation quickened to 4% in March from 3% in February, matching the upper end of the BSP’s 2-4% target. 

The central bank last month raised its inflation forecast for 2022 and 2023 to 4.3% and 3.6%, respectively, taking into account the elevated prices of oil and commodities.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno previously said the cross-border financial exposure of Philippine banks to both Russia and Ukraine is very minimal.

BDO’s Mr. Tan also pointed out the risk-off sentiment ahead of the upcoming national elections on May 9.

“The elections will clearly bring different expectations and different policies. Businesses have taken a pause before investing,” Mr. Tan said.

Separately, East West Banking Corp. President and Chief Executive Officer Antonio C. Moncupa said the COVID-19 pandemic remains a risk until its end is officially declared.

“We also need to consider the geopolitical tension as it affects world prices and affects our imports, economy and inflation,” he said at EastWest’s annual stockholders’ meeting also held on Friday.

Mr. Moncupa said loan losses are likely to continue declining although the bank’s earnings are unlikely to return to pre-pandemic level in 2022.

The lender’s net profit in 2021 dropped by 30.8% to P4.5 billion from a year earlier.

“Our earnings capacity should have increased significantly this year and we should be back closer to 2019 income levels by 2023,” he said.

Meanwhile, Mr. Tan said recent economic reforms, such as the passage of laws amending the Retail Trade Liberalization Act, the Foreign Investment Act, and Public Service Act could open up growth opportunities for the local banking industry.

“If crafted well in terms of implementing rules, (the laws) will help spur economic activity. And generally, increased economic activity helps the banking sector. So, we expect that this would benefit our clients and effectively benefit the bank,” he said.

Mr. Tan is hopeful that the next administration will also prioritize policies  that will deter cybercrime and boost regulation of nonbank financial service providers.

“We need to be tighter on cybercrimes, we need to make sure that we do our part in preventing or discouraging the perpetrators from committing cybercrimes,” he said.

While banks are heavily regulated, Mr. Tan noted there has been a proliferation of nonbank financial service providers that do not fall within the regulatory ambit of financial supervision.

“So, for the health of the industry, and for public policy, they should look at how these entities should be managed relative to banks,” he said.

The Philippine banking industry’s collective net income surged by 44% to P223.66 billion in 2021 from P155.22 billion in 2020. — Luz Wendy T. Noble