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Philippines: Banks see return to double-digit loan growth in 2 years
MANILA, Philippines — Banks are hoping for a double-digit credit expansion starting this year, signaling optimism lending will start to pick up after last year’s default fears triggered reluctance to lend, the Bangko Sentral ng Pilipinas (BSP) said.
A new BSP survey of bank executives for the second half of 2020 showed majority of lenders projecting their loan books to expand between 10% and 15% over the next 2 years, Governor Benjamin Diokno said in a statement on Friday.
The optimism was fueled by expectations that economic sectors badly beaten by the health crisis are the same sectors poised for a bounce-back in the next 6 months to 2 years. Respondents said some of these sectors are hospitality and tourism, transportation, as well as wholesale and retail trade.
“The outlook on the Philippine banking system remains relatively stable,” Diokno said.
Central bank data showed loans from big banks, net of their lending among each other, inched up a measly 1.9% year-on-year to P8.96 trillion in October, the weakest in 14 years. The performance was worse month-on-month when lending declined 0.4%.
It’s a weakening trend that started in April when coronavirus lockdowns ushered record-high joblessness that banks feared would result into more loan defaults. At this point, banks still expect bad debts to remained elevated beyond 2020, exceeding 3% of total loans for 2021 and 2022. The rate was at 3.72% as of October 2020, the latest period on which data is available.
Meanwhile, half of respondents also projected restructured debts to represent over 3% to 5% of total bank credit. These are existing loans repackaged with longer payment terms to allow defaulting borrowers to settle them.
To shield their balance sheets from the wave of unpaid loans, banks will keep their capital and liquidity ratios above global standards of 10%, the central bank said. A double-digit deposit growth is also expected to fund loans and more financial asset acquisitions.
As to the broader economy however, majority of respondents see gross domestic product returning to growth of 6-6.3% only within the next 2 years. This is a more pessimistic view than that government that expects 6.5-7.5% growth this year and 8-10% in 2022.
“The Philippine financial system is projected to withstand the legacy risks and challenges posed by the COVID-19 pandemic within the next two years on account of its relatively stable and sound capital, leverage and liquidity buffers, ample loan loss reserves and buoyant earnings performance,” the BSP said.
Source: https://www.philstar.com/business/2021/01/08/2069105/banks-see-return-double-digit-loan-growth-2-years