Philippine banks 'likely to recover faster from pandemic than 1997 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 country's bankers group said.

Lenders in the South-east 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.

The country's bad loan ratio may peak at 6-7 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$20.6 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.

In Malaysia, strong asset quality and buffers that banks built up during the good times have helped prevent a financial crisis, Bank Negara Malaysia deputy governor Jessica Chew Cheng Lian said.

"It was really top of mind for us to ensure that the pandemic does not evolve into a financial crisis, which would obviously lead to a much deeper and extended economic contraction," Ms Chew said via live-stream Monday from the Asian Financial Forum in Hong Kong.

In the same way, 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 a slower economic recovery amid a resurgence in virus cases as a "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 Philippine economy is expected to grow by 6.5-7.5 per cent this year, after a projected contraction of as much as 9.5 per cent in 2020, according to latest government estimates.

Provisions for loan losses will remain elevated in 2021, but not as high as last year when they reached record levels. Banks can also tolerate negative interest rates for up to a year.

While interest rates have fallen, other costs like regulatory, technology and cybersecurity expenses have increased. Philippine growth is very credit intensive, with a ratio of 1.50 pesos of new loans for every one peso of new economic output.

A challenge for Philippine banks is how to become bigger and remain re-levant to support the country's growth agenda. Banks now account for 12-13 per cent of the stock exchange compared with 15 per cent a decade ago. BLOOMBERG