July 2, 2022
  • July 2, 2022

Bank supervision must follow new normal, central bank says

By on May 9, 2021 0

THE THE BANKING SYSTEM remains resilient amid the pandemic, but the Bangko Sentral ng Pilipinas (BSP) said it may be necessary to reassess current banking regulations to accommodate the new normal.

BSP’s report on the Philippine financial system for the second half of 2020 showed that banks have been able to weather the crisis so far, as evidenced by their net proFits and capital.

“The Philippine financial system should withstand the risks and challenges inherited from the COVID-19 (coronavirus 2019) pandemic through calibrated programs to ensure a sustainable and resilient economic system with an efficient and innovative financial system,” the central bank said .

“It also implies that the consequent risks of loans need to be monitored, including the emerging risks of inflation expectations and the potential second-round effects of rising prices and rising non-performing accounts that could exert more. pressure on the banking system, ”he added.

While banks remain well guarded and largely capitalized, the central bank has warned that the sector will continue to face a build-up of non-performing loans (NPLs) but “will remain at manageable levels.”

BSP Deputy Governor Chuchi G. Fonacier said he expected the NPL ratio to be just over 5% by the end of 2021. Republic Law 11523 or the Law on Strategic transfers from financial institutions is expected to lower the NPL ratio by around 0.63 to 0.71 percentage point, as it will allow banks to clean up their balance sheets by selling their non-performing assets to FIST companies.

“The FIST law should help the financial system to fulfill its role of effijudiciously mobilize savings and investments for the country’s economic recovery and sustained growth and development, ”BSP said.

The PASB noted that the slowdown in credit growth was “manageable” and “expected” as the country continues to grapple with the crisis.

“The slowdown in credit growth is expected as the pandemic-induced recession in the real sector has caught up and weighed on the financial sector in 2020,” he added.

This credit collapse was observed despite historically low interest rates. The BSP last cut its rate by 200 basis points last year to support the economy, taking overnight repo, lending and deposit rates to record highs of 2%, 2.5% and 1.5%, respectively.

Based on the BSP report, the overall average weighted average interest rates of the big big banks fell to 5.5% at the end of December, from 8.2% in March 2020 and the 7% at the end of June. from last year. The median also fell to 4.8% at the end of December last year from 5.8% at the end of March 2020 and 5.4% at the end of June 2020.

“Unemployment, low money flFinancial flows, temporary business closures and economic uncertainty have dampened demand for loans and even led creditors to tighten lending standards, creating a downturn for credit growth, ”BSP said. .

Preliminary data from the central bank showed that outstanding loans from major banks fell 2.7% for the third month in a row in February. A BSP survey showed banks plan to tighten credit standards further in the second quarter.

The BSP has rated the net pro of banksFiThe past year, though weaker, is a testament to the industry’s resilience.

“The decrease in net profit for the year 2020 is mainly due to the increase in the banks’ allowance for credit losses on loans and other financial assets. Nonetheless, the positive results are mainly due to net interest income from lending activities, ”he said.

The net income of the banking sector was 155.218 billion pesos in 2020, down almost a third (32.7%) from the 30.67 billion pesos in 2019.

“Banks should continue to manage risks prudently in a context of improving margins. They also need to comprehensively assess and monitor loan quality to ensure that growing asset quality issues are quickly resolved and provisions for credit losses are properly recognized, ”the central bank said.

The BSP said the pandemic should serve as a catalyst to reassess the industry and the regulations currently in place.

“In the future, it is also useful to better understand how the pandemic is shaping the future banking landscape in the context of the new economy.Finitely fromFine the new regulatory architecture and oversight approach of BSP, ”BSP said. “Overall, an intense supervision engagement with banks should complement the close monitoring and surveillance activities.” – LWTNoble