Philippine banking system stable despite decline in credit activity, BSP says

The Philippine banking system remains stable even amid the COVID-19 pandemic, the Bangko Sentral ng Pilipinas (BSP) said Wednesday, even as bank lending continues to decline.

In a virtual briefing, BSP Governor Benjamin Diokno cited the growth of the industry, with total assets up 5.4% to P19.8 trillion as of end-July, primarily in the form of loans and portfolio investments.

“The positive performance of the Philippine banking system is evidenced by sustained growth in its assets, deposits, and capital, as well as ample capital and liquidity buggers and loan loss reserves,” he said.

Latest data available show that funding came mainly from deposits which grew 7.2% year-on-year to P15.4 trillion, which the central bank said reflected the public’s trust and confidence in the banking system.

Diokno’s remarks come even as bank lending continued to decline in July, albeit at a slower rate than previous months. Updated data show a 0.4% year-on-year drop to P10.8 trillion.

“Credit activity is expected to improve in the coming months amid the accommodative monetary policy, the national government’s accelerated vaccination program, and implementation of granular lockdowns in the National Capital Region,” said Diokno.

BSP data also indicate that the non-performing loan ratio of the banking system increased to 4.5% as of end-July, with an NPL coverage ratio of 82.4% the same period.

“We believe that loan quality will remain manageable as both BSP and the banks project the banking sector’s non-performing loan ratio to settle between 5.0% and 6.0% by end-December 2021,” Diokno said.

“The BSP will continue to adopt policy reforms on risk governance aimed at promoting the continued safety and soundness of the financial system against the backdrop of rapid advancements in technological innovations, an evolving financial ecosystem, and the increasing attention towards the attainment of social and environmental goals,” he added.

The BSP earlier this month cited the need for accommodative policy settings to continue, in a bid to boost the economic given the uncertainties brought about by the COVID-19 delta variant.

The Philippines has so far administered a total of 41.793 million doses of COVID-19 vaccines: 18.823 million have received the full doses needed, while 22.970 million have received only their first dose as of September 20, 2021.

The National Capital Region (NCR) is currently under Alert Level 4, under which select businesses have been allowed to resume operations, albeit at a limited capacity. — BM, GMA News