Philippine bank virus rebound to be faster than post-Asian crisis

[MANILA] Philippine banks will recover faster from the impact of the coronavirus pandemic than they did from the Asian financial crisis due to record-low interest rates, higher capital and a stable economy, the head of the nation's bankers group said.

Lenders in the Southeast Asian nation may bounce back in three to four years, about half the time it took after the 1997 crisis as banks aggressively provision for probable losses, said Cezar Consing, president of the Bankers Association of the Philippines. "This crisis might be more impactful on the economy, but the banking system at the same time is better able to handle some of the stresses," he said in an online interview.

The nation's bad loan ratio may peak at 6 per cent-7 per cent this year, Mr Consing said, compared with about 4 per cent in 2020, and far lower than the 20 per cent levels seen during the Asian crisis. This would mean banks hold about 744 billion pesos (S$20.63 billion) in bad debt out of a total of 10.63 trillion pesos of loans at the end of November.

Mr Consing, who is serving his final three months as president of Bank of the Philippine Islands before retiring, recalled that it took lenders about six to seven years to recover pre-crisis profits after the 1997 crisis.

'Downside Risk'

Above-minimum capitalisation and ample provisions for bad loans are bright spots for Philippine banks and most major lenders had coverage of over 100 per cent in the third quarter, according to Rena Kwok, a Singapore-based analyst at Bloomberg Intelligence. Still, Ms Kwok sees the slowdown in economic recovery due to the resurgence in virus cases as a possible "downside risk." The Bangko Sentral ng Pilipinas, like other central banks globally, has eased monetary policy and brought in other relief measures to limit the fallout of the pandemic. It cut reserve requirements for banks to encourage lending and help shore up cash in the financial system.

The economy is expected to grow by 6.5 per cent-7.5 per cent this year, after a projected contraction of as much as 9.5 per cent in 2020, according to latest government estimates.

BLOOMBERG