Bank profits to remain below pre-COVID-19 levels

MANILA, Philippines — Profit and lending of Philippine banks are likely to remain below pre-pandemic levels amid the expected uneven economic recovery from the impact of the global health crisis, Moody’s Investors Service said.

In a report, the debt watcher said profitability and credit growth in the Philippines, Malaysia and Indonesia would remain below pre-pandemic levels.

However, Moody’s said the capitalization of banks in the three countries would remain strong amid the pandemic.

“Modest asset growth will help banks maintain capital ratios,” it said.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed assets of Philippine banks inched up by 4.7 percent to P19.99 trillion in end-April from P19.03 trillion last year.

Preliminary statistics showed earnings of banks operating in the Philippines slipped by 5.7 percent to P52.52 billion in the first quarter from P55.68 billion last year as the amount of bad debts written off tripled amid the COVID-19 pandemic.

The amount of bad debts written off by Philippine banks tripled to P3.43 billion in the first quarter from P1.15 billion a year ago.

After a massive jump in allowance for bad debts as more borrowers defaulted on loan payments due to the impact of the global health crisis last year, provisions for credit losses on loans and other financial assets declined by 10 percent to P23.18 billion from P25.75 billion.

Moody’s said profitability of banks in the region would be stable, while loan-loss provision would remain elevated amid the ongoing global health crisis.

“Across the region, loan loss provisioning expense have peaked but will stay high in 2021 reflecting potential asset risks from loans under support measure,” Moody’s said.

Loan disbursements by big banks in the Philippines contracted for the fifth straight month with a five percent decline in April, faster than the 4.5 percent drop recorded in March. This was the worst drop since the 7.2 percent recorded in June 1999.

Moody’s said economic recovery and strong commodity prices would support asset quality in the region.

However, the debt watcher said some loans under regulatory forbearance would become non-performing when the support measures end.

The gross non-performing loans (NPL) ratio of Philippine banks accelerated for the fourth straight month to hit a fresh 12-year high of 4.35 percent in April from 4.21 percent in March.

Moody’s believes stable funding and liquidity would remain credit strengths of Asian banks.

Last April, Moody’s raised the outlook of Philippine banks to stable from negative on expectations of a mild recovery from the pandemic-induced recession. It affirmed the investment grade Baa2 rating of the industry.

The debt watcher downgraded the industry’s outlook to negative from stable in April last year as the economy stalled after Luzon was placed under enhanced community quarantine to slow the spread of COVID-19.