Bank presidents share bullish outlook for 2025

MANILA, Philippines — As 2024 draws to a close, bank leaders are optimistic about 2025, highlighting resilience, growth opportunities as well as cautious optimism amid global challenges.

BDO Unibank Inc. president and CEO Nestor Tan summarized 2024 as a year of mixed dynamics.

“This year was actually a good year,” he said. “It started out slow, was getting better, and then in the fourth quarter, it started to slow again. I think there were factors beyond our control,” he said.

According to Tan, external uncertainties such as the change in US administration, political noise in the Philippines and regional tensions in the South China Sea as factors influencing corporate decisions.

“These factors have put a lot of plans of corporations temporarily on hold, and I hope they don’t cancel it. So we’re looking forward to a more reserved 2024 ending and hopefully a pickup in 2025,” Tan said.

Sanjiv Vohra, president and chief executive officer of Security Bank Corp., said 2024 was a “progressive” year and underscored significant advancements despite external challenges.

“Our outlook on the banking industry for 2025 is upbeat,” Vohra said in an email interview with The STAR.

Vohra said the factors that would drive growth in the banking sector next year include a stronger gross domestic product (GDP) growth of above 6.1 percent amid the election spending.

The Philippine economy grew by only 5.2 percent in the third quarter, slower than the 6.4 percent in the previous quarter and six percent a year ago. From January to September, GDP growth averaged 5.8 percent.

Inflation is also projected to remain manageable as it is expected to average by around 3.2 percent in 2025, which is near the midpoint of the two to four target range of the Bangko Sentral ng Pilipinas (BSP).

This would bolster the case for the BSP to continue its easing cycle next year, as Vohra forecasts additional cuts both in borrowing costs and banks’ reserve requirements.

He expects the BSP to cut interest rates by a total of 100 basis points and lower reserve requirement ratios by 200 basis points next year.

The BSP delivered a total of 75 basis points of rate cuts this year as it shifts towards a less restrictive monetary policy stance. This brought the key rate down to 5.75 percent from 6.50 percent at the start of the year.

Before this move, the BSP had maintained its policy rate for six consecutive meetings since November 2023. From May 2022 to October 2023, the central bank had aggressively raised rates by a total of 450 basis points to rein in inflation.

Solid loan demand

“The banking sector’s credit growth is seen to hover around the low teens, amid solid loan demand given economic expansion, low inflation and declining interest rates,” Vohra added.

Data from the central bank showed that loans disbursed by universal and commercial banks amounted to P12.5 trillion in end-October this year, up by 10.6 percent from the P11.31 trillion recorded in the same period last year.

This helped boost bank earnings. Separate BSP data showed that the profit of banks operating in the Philippines rose by 6.4 percent to P290.1 billion from January to September compared to last year’s P272.6 billion.

Citi Philippines CEO and country head Paul Favila echoed Tan’s optimism, describing the country’s fundamentals as relatively strong despite global uncertainties.

“Next year, we continue to remain very optimistic,” he said. “Of course, the most difficult thing to predict these days would be the impact of geopolitics. But in terms of the fundamentals for the Philippines, it remains relatively strong.”

Favila said inflation is expected to be under control, even with recent weather disturbances. Despite the adverse impact of several consecutive typhoons putting pressure on inflation, prices did not really go out of control.

Inflation quickened to 2.5 percent in November from 2.3 percent in October, marking its second straight month of increase. This brought the average inflation for January to November to 3.2 percent.

“I think things are still very much within the comfort zone of the Bangko Sentral,” Favila noted. While refraining from speculating on the BSP governor’s next move, he emphasized the government’s commitment to sustainable growth.

“The focus remains on ensuring sustainable growth. The government is very unified in terms of ensuring that the policies are consistent and supportive of that agenda,” he added.

Asked if how recent monetary policy adjustments would shape the banking industry next year, Favila said it would all depend on the pace of the coming rate cuts.

“The BSP may choose to slow things down a bit to err on the side of caution. Still, it does not move away from the real intent, which is to gradually loosen the policy over time, which is going to be supportive for growth,” he said.

Lower interest rates and manageable inflation would also help support private consumption, which is a key driver of economic growth in the Philippines. More consumption could also lead to higher credit growth in the banking industry, Favila said.

“I don’t see any reason for loan growth to slow down next year. It’s a good indicator of economic activity,” he said. “As long as the non-performing loans remain relatively low, then I think we’re in a good place.”

The NPL ratio of Philippine banks went up to 3.6 percent in October from 3.47 percent in September. It marked the highest in 29 months or since the 3.75 percent in May 2022.

NPLs refer to credit obligations that have not been repaid for at least 90 days past their due date. These loans are categorized as highrisk assets because they indicate a borrower’s diminished ability or willingness to meet their financial obligations.