Bankers expect slow pace of economic recovery

MANILA, Philippines — Top bank executives are looking at a slower economic recovery this year after the country slipped into recession for the first time in more than two decades last year due to the impact of the COVID-19 pandemic, according to the Bangko Sentral ng Pilipinas (BSP).

The second semester 2020 Banking Sector Outlook Survey (BSOS) showed 64.6 percent of the bank respondents, mostly bank presidents and chief executive officers, expect the gross domestic product (GDP) to return to a range of less than six percent to 6.3 percent in 2021 and 2022.

“Current bank projections converged on the two lowest growth tiers less than six percent and six to 6.3 percent, with 41.4 percent of respondents expecting a GDP growth of less than six percent,” the BSP said.

It added the real GDP growth forecast for the second semester was slightly more upbeat with 43.6 percent biased toward the six percent to 6.3 percent growth range.

The growth penciled by bankers is also lower than the 6.5 to 7.5 percent GDP growth range set for this year by economic managers through the Development Budget Coordination Committee (DBCC).

Across banking groups, the survey showed 64.7 percent of respondent universal and commercial banks forecast GDP growth of less than six percent and 6.3 percent while 29.4 percent are more optimistic with a range of greater than 6.6 percent to seven percent.

Meanwhile, 59.3 percent of respondent thrift banks and 43.8 percent of respondent rural and cooperative banks projected real GDP growth of less than six percent.

Foreign banks, on the other hand, are more bullish as 56.5 percent expect GDP to grow by 6.3 and more than seven percent in the next two years.

“On the whole, the general softening in banks’ GDP growth outlook is consistent with that of the International Monetary Fund, which projected the country’s real GDP growth to contract by 8.3 percent in 2020 before growth returns to 7.4 percent in 2021,” the central bank said.

It added the IMF forecast was anchored on the path of the pandemic, the needed public health response, and the associated domestic activity disruptions, as well as the extent of global spillovers from soft demand, weaker tourism, and lower remittances.

Likewise, the BSP said the Asian Development Bank (ADB) revised its growth outlook for the Philippines to 7.3 percent contraction in 2020 amid the COVID-19 pandemic before growth returns to 6.5 percent in 2021.

The banks’ positive economic outlook translated to renewed confidence in the stability of the banking system as 68.8 percent of the banks respondents projected a stable banking system in the next two years, the BSP said.

About 24.8 percent of respondents, largely foreign banks, expected a stronger banking system in 2021 to 2022, higher than the meager 0.8 percent recorded in the second semester 2019 BSOS.

“The news of a high efficacy (more than 90 percent) of the COVID-19 vaccines, being developed and soon to be rolled out by leading pharmaceutical and biotechnology companies, partly buoyed banks’ risk-on sentiment,” the BSP said.

As such, 60.5 percent of the respondent banks are projecting a double-digit growth in assets, slightly lower than the year-ago level of 70.7 percent. This would be powered by a double-digit growth in loan portfolio as well as deposit base.

Despite the impact of the COVID-19 pandemic, 70.6 percent of the respondent banks are forecasting a double-digit growth in earnings in the next two years, down from a year-ago level of 79.8 percent.

The survey covered presidents, CEOs, and country managers of all big and mid-sized banks as well as 80 rural and cooperative banks representing 73 percent of the industry’s total assets. It aims to serve as a measure of proactive and forward-looking approach to surveillance and financial supervision.