PAWNSHOPS and other nonbank financial institutions (NBFIs) suffered from decreased loan quality and profitability in the first half of 2020 as remittances from Filipino migrant workers significantly decreased during the period.
Reports from the Bangko Sentral ng Pilipinas (BSP) said that in a recent survey conducted by the country’s monetary authority, weaker loan quality and profitability among pawnshops and other NBFIs could eventually affect their liquidity and capital.
The survey was done to assess the impact of the Covid-19 pandemic on the NBFIs.
Some money service businesses (MSBs) also reported encountering difficulties in meeting liquidity requirements since their depository banks have limited operating hours. Further, restricted mobility has hampered the supply of cash across their branches.
Preliminary results showed that the pandemic has greatly affected the NBFIs that serve as remittance channels (RCs), with approximately 75 percent of the respondents reporting decline in the volume and value of both international and domestic remittances based on their transactions for the month of April 2020.
The decline was mainly attributed to the loss/reduction in income of migrant workers due to the pandemic.
The industry’s prospect for international remittance is also largely not favorable, with 54 percent expecting a decline in both volume and value of transactions, while 43 percent of them are forecasting a decline of more than 20 percent.
Despite this, 93 percent of the RCs remain operational during the community quarantine.
They attributed this to the authority provided by the government for remittance services to be continuously offered even during the community quarantine period, the adoption of a business continuity plan made in adherence to BSP regulation, among others, to ensure business continuity; and the actions taken by the BSP to support the industry, including issuing regulatory relief measures.
The survey includes responses gathered from top 20 pawnshops and top 19 MSBs, representing 78.9 percent and 73.7 percent, respectively, of their industry network as of May 31, 2020.
“While pawnshops and MSBs are generally small players in terms of size, and the volume and amount of transactions, the number of customers they serve and the extent of their network have a significant impact on the financial system,” the BSP said.