Bank exec sees sector primed for role in economic recovery

A bank executive said the Philippine economy can rely on the fundamentally-strong financial sector to remain on track as it clambers from recession.

Security Bank Treasurer Raul Martin A. Pedro said in a webinar on Thursday that the banking sector has maintained a robust capitalization even before the lockdown measures against the pandemic pushed the economy to near atrophy.

“Given the very strong capital position of banks, we are in a pretty much very strong position to support the economic recovery as it comes,” he said.

As of end-September, the banking sector’s capital stood at P2.41 trillion, which is 6.64-percent higher compared to P2.26 trillion it registered last year for the same period.

Pedro said that the industry is well-capitalized, thanks to the regulations mandated by the Bangko Sentral ng Pilipinas (BSP), which included setting minimum capital adequacy ratio of 10 percent.

“When the pandemic came in, all Philippine banks are pretty much well-prepared for events like these,” he said.

In addition, the bank official said that the BSP has been doing some heavy lifting to provide economic relief via liquidity injection, which has reached P1.6 trillion already.

The Central Bank, to recall, has cut the policy rates by 200 basis points (bps) in total, with overnight reverse repurchase facility currently at 2 percent.

“We believe that the policy rates will be kept rather stable over next couple of quarters,” he said, as the economic outlook remains bleak. Security Bank is projecting the economy to contract by 9.9 percent in 2020.

MUFG Bank Asean Head of Global Markets Research Leong Sook Mei agreed, saying that “unconventional monetary policies will still be in place for countries like Indonesia, the Philippines and India.”

The Central Bank, meanwhile, shaved off 200 bps and 100 bps on the reserve requirement of (RR) the big banks and rural and thrift banks, respectively. Should the BSP further cut the RR by 200 bps, Pedro said that it will release additional P200 billion into the financial system.

The BSP also purchased P1-trillion worth of domestic securities, which resulted in its assets growing by 31 percent to P6.76 trillion as of August, Pedro said, noting that the normal asset growth ranges only from 2.4 percent to P5 percent usually.

“Clearly, with additional support that the Central Bank has provided in terms of liquidity, we are able to face the unfolding economic difficulty at this point,” Pedro said.

Tightening access

Amid the economic slowdown, the Security Bank executive noted that clients have been finding it difficult to pay off their loans as revenues dwindled.

“We do realize that a number of our citizens and businesses have been affected by the pandemic and to a certain extent, MSMEs [micro, small and medium enterprises] and certain businesses have suffered and to a certain extent some Philippine banks have begun to absorb that as well,” he explained.

In response, the banking sector has been beefing up provisioning for potential credit losses, which resulted in lower net income.

The industry has an allowance for credit losses of P338.96 billion as of end-September. This, as gross nonperforming loans ratio stood at 3.47 percent in the same period, which is the highest in the last few years.

With this, Pedro said that the banks have become “stricter” when it comes to approving loans as they try to reduce exposures to highly affected industries, such as travel and tourism.

Preliminary data from the BSP showed that outstanding loans provided by the universal and commercial banks further weakened in September at 2.8 percent from 4.7 percent in August.

“But nonetheless, as a bank, our mentality has not changed. SME and consumer sectors have been growing for us quite significantly over the past couple of years,” he said. “And once the economy normalizes, I’m quite certain that it is an area that we would want to be heavily involved with again.”

Cure, recovery

The Philippine economy has seen the worst, Pedro said, noting that more is needed to be done to boost recovery.

“Is the worst over? I think we’ve seen it. The recovery needs a lot of more push for us to clearly see it way behind us,” he quipped.

With this, the bank official said that economic recovery will be supported by the development and distribution of coronavirus vaccine.

Citing Google data, Pedro said that the “mobility in our economy by way of our mobile phone movement, we are still about 40 percent of the pre-pandemic level of activity.” The Philippines has a lot of “catching up to do,” he added.

To secure the orders for the vaccine, 2nd District of Marikina City Representative Stella Luz A. Quimbo said that the government should be able to make advance payments as countries are lining up.

“Given logistical challenges in mass producing billions of vaccines and distributing it worldwide, along with preorders mostly concentrated in the US and Europe, not all parts of Asia and Japan will be able to inoculate all of the citizens,” Leong warned.

Image credits: 

Nonoy Lacza

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