Bankers expect sustained earnings growth in next 2 years

MANILA, Philippines — Majority of Philippine banks continue to expect a double-digit growth in earnings over the next two years due to higher net interest margins supported by the elevated interest rate environment, the Bangko Sentral ng Pilipinas (BSP) said.

Based on the 2023 Banking Sector Outlook Survey (BSOS), the BSP said 76.5 percent of the respondents expected double-digit net income growth for the next two years.

All six digital banks viewed growth in their net income to be higher than 30 percent for the next two years.

Meanwhile, 53.3 percent of universal and commercial banks were more conservative in their estimates, projecting a net income growth rate of between 10 and 20 percent. This is two times higher than the 26.3 percent in the previous survey.

Foreign banks, thrift banks as well as rural and cooperative banks reported mixed projections for their income growth in 2024 and 2025.

“Profitability prospects remain encouraging on the back of a high interest-rate environment and improving macroeconomic conditions,” the BSP said. “A larger proportion of respondent banks project a high net interest margin (NIM), ” it added.

More than half, or 61.2 percent of respondent banks (from 52.9 percent), estimate their NIMs to hover between three and 10 percent.

Across banking groups, big banks and foreign lenders are quite conservative as most are expecting their NIM to range from three to five percent and below five percent, respectively.

For thrift banks, projections are skewed toward the greater than five to 10 percent, while most digital banks forecast an upper NIM tier above 10 percent. Smaller bank respondents continue to report mixed outturn in their NIM projections.

Favorable returns are also expected as banks reap benefits from the country’s robust economic growth, the BSP said. Banks are projecting a rosier return on equity, with 47.8 percent expecting more than 10 percent of ROE.

Philippine banks are more optimistic about maintaining a high level of risk-based capital, supported by continuous earning expansion. Lenders also plan to keep their capital buffers high over the next two years.

“In terms of corporate banking operations, most respondent banks cite that lending to MSMEs and real estate activities, as well as financing sustainable activities and green projects, will be their priority corporate banking products and services for the next two years,” the BSP said.

More banks or 70.1 percent (from 66.9 percent) project double-digit growth in their assets as loan expansion remains a key driver to their operations. Around 82.2 percent of banks (from 78.7 percent) see double-digit growth in lending activity.

Banks also see an improvement in loan quality as 48.7 percent (from 52.4 percent) expect their non-performing loan (NPL) ratio to exceed five percent in the next two years. Meanwhile, the remaining 29.4 and 21.9 percent believe their NPL ratio to settle below three percent, and between three to five percent, respectively.

Banks plan to maintain their provisions at an ample level to manage potential losses arising from a prolonged high interest rate environment as 58 percent (from 50.4 percent) of respondent banks were looking to register an NPL coverage ratio of above 50 percent.

Data from the central bank showed earnings of Philippine banks jumped by 4.1 percent to P190.21 billion in the first half from P182.76 billion in the same period last year  on the back of higher interest income.