Global banks to play vital role in post-pandemic recovery

MANILA, Philippines — Banks worldwide are armed with strong balance sheet and will continue to play their part in supporting economic recovery amid the global health crisis, according to Singapore’s DBS Bank Ltd.

In its latest commentary titled “Asia’s banks; problem or solution,” DBS said banks are actively involved in targeted lending programs and public sector supported measures amid the ongoing COVID-19 pandemic.

“Here in Asia, banks are largely in good shape so far. Overall capital adequacy ratios (CAR) have risen or remain flat in most countries in the past decades while common equity tier 1 capital buffers have just risen just about everywhere,” DBS said.

In the Philippines, latest data from the Bangko Sentral ng Pilipinas (BSP) showed the banking industry’s CAR stood at 15.3 percent on solo basis and 15.9 percent on consolidated basis as of end-March, well above the 10 percent minimum set by the BSP and the eight percent prescribed by Basel 3.

As part of the post-pandemic recovery, DBS said banks and governments should take on more credit risk, exercise more restraint and tolerance with creditors, as well as entertain low interest rates and compressed margins for years to come.

Furthermore, banks should also take increasing cues from the government about the direction and allocation of credit.

“Here in Asia, banks are largely in good shape, having built up their capital reserves in the past decade. Overall capital adequacy ratios have risen or remained flat in most countries, except for India and the Philippines,” it said.

Along with lower interest rates, DBS said provisions for liquidity and government support programs would likely keep credit risk from spiking.

However, it explained some businesses and households would struggle and stress would likely show up in the balance sheets of some regional banks as some support measures expire during the course of next year.

“During the course of next year, some support measures will expire, and some firms and households may not find the respite from COVID-19 coming fast enough to stave off bankruptcy,” DBS said.

With the ongoing pandemic-induced economic distress, DBS said banks would likely see non-performing loans (NPLs) rise over the next few years.

In the Philippines, a survey conducted by the BSP showed that banks expect their NPL ratio to rise to 4.6 percent by the end of the year in anticipation of higher defaults as the economy stalled when the Luzon was placed under strict lockdown.

The gross NPL ratio of Philippine banks picked up for the eighth straight month to hit its highest level in almost seven years at 2.84 percent in August from 2.7 percent in July as restructured loans more than double and past due loans continued to soar amid the economic fallout from the pandemic.

This was the highest gross NPL ratio since the 2.87 percent booked in February 2014. The bad loan ratio of the country’s banking industry has steadily increased since the 2.16 percent recorded in January.

Preliminary data showed gross NPLs of the industry surged by 35 percent to P305 billion in August from P225.9 billion in the same month last year.

NPLs or bad debts refer to past due loan accounts where the principal or interest is unpaid for 30 days or more after due date.