BANKS are painting a rosy picture of the lending industry in the coming years, as they pin their hopes on strong macroeconomic fundamentals, adequate liquidity, rising capital buffers and profitability of banks.
The Bangko Sentral ng Pilipinas (BSP) on Wednesday published its Maiden Report on the Banking Sector Outlook Survey (BSOS) for the First Semester of 2018.
The BSOS gathers the sentiments of the presidents/chief executive officers/country managers of 114 banks in the country related to their growth outlook and risk assessments, business performance strategies, and insights on regulation and supervision within a two-year horizon.
The BSP’s survey results showed that about 6.7 percent of the respondents consider a stable outlook for the banking system, while the remaining 33.3 percent see the banking system as being stronger in the next two years.
“This is anchored on the respondents’ economic growth forecast of 5 to 7 percent. The stable outlook for the banking system, can be attributed to the strong macroeconomic fundamentals, adequate liquidity, rising capital buffers and profitability of banks,” the BSP said.
Further, the BSP said the majority of the respondents believe that expanding client base, deepening of customer relationships and developing new products are necessary to grow the bank.
Mandatory lending hard to comply with
Most banks, except the rural and cooperative banks, viewed compliance with mandatory credits to agri-agra and micro, small and medium enterprises as “the most challenging area in terms of compliance.”
The mandated lending to agriculture and agrarian reform, under the Agri-Agra Reform Credit Act of 2009, requires banks to allocate 25 percent of their total loan portfolio to the two sectors—10 percent for the agrarian-reform credit and 15 percent to other
agricultural credit.
The MSME sector also has a credit benefit on their way—the law requires banks to set aside another tenth of their total loan portfolio to MSME lending.
Should local lenders—big or small—fail to meet the quota, they will be subject to monetary fines and penalties.
However, for years on, banks have chosen to pay the monetary penalty instead of complying with the mandatory lending to these sectors, as banks—especially those unfamiliar with MSME or agricultural clients—would rather pay the fixed fine instead of facing the many risks of lending to unknown territory.
The BSP said respondents also cited compliance with the BSP’s reportorial requirements and anti-money-laundering regulations remain an ongoing concern.
Technology biggest opportunity
With the rapid pace of digital technology reshaping the banking industry, the BSP also said respondents underscore the need to optimize available technology.
Survey results reveal that 81 out of 114, or 71.1 percent, of respondent banks have plans to use technology in the banking transactions in the next two years.
“Managing reputational and operational risks, data and cybersecurity enhancement, upholding consumer protection, and increase of capital and liquidity ratios are also deemed important to protect the bank,” the BSP said.
Image credits: Nonie Reyes