Friday, 10 July 2009

Philippine banking seen to remain healthy—ADB exec

Michelle Remo
Philippine Daily Inquirer
http://business.inquirer.net/money/topstories/view/20090710-214692/RP-banking-seen-to-remain-healthyADB-exec

MANILA, Philippines – The Asian Development Bank expects the banking sector to remain healthy this year and, as such, help the Philippines avoid a credit crunch that is being suffered by other countries.

“Liquidity in the country’s banking system is plenty, as proven by a solid growth in M3... There may be some decline in profitability, but not to a degree that will be worrisome,” Neeraj Jain, ADB country director for the Philippines, said in a briefing Thursday.

Contrary to some projections that the local banking system would be in trouble this year due to the failure of some borrowers to pay back loans, Jain said banks in the country would remain major contributors to economic growth this year.

He said bank lending was not expected to contract and was likely to continue posting decent growth.

Jain cited a recent report by the Bangko Sentral ng Pilipinas that the outstanding loan portfolio of the banking sector had continued to post double-digit growth as of May.

The BSP said that in January to May, the outstanding loans of banks amounted to P2.13 trillion, up 10.2 percent year-on-year. If inter-bank loans were excluded, loans to consumers and corporate clients hit P1.98 trillion, up 17 percent from that in the same period last year.

“A 17 percent growth in lending is still very strong,” Jain said.

This year’s lending growth, as indicated by data for the first five months, would likely slow down from more than 20 percent in the previous years. But Jain said a deceleration was expected given efforts of banks to improve their risk-management programs.

"It is expected that banks will strengthen their risk management, but it does not mean they are not taking risks. They are still lending,” Jain said.

Unlike other institutions that expect the Philippines to fall into recession this year, the ADB expects the country to maintain positive growth. The ADB’s projection is anchored partly on rising bank lending and remittances sent by overseas Filipino workers.

Jain, however, said the ADB would likely downgrade its growth forecast for the Philippines and other Asian countries for the year to take into account recent developments. In its outlook last year, the ADB said the Philippines would likely grow by 2.5 percent this year.

Jain said this growth forecast might already be outdated given that the Philippines, like other countries in the region, grew much slower than expected in the first quarter. The economy grew by only 0.4 percent in the first quarter, the slowest in 10 years.

But Jain said the Philippines was expected to still register positive growth this year.

In 2008, the country’s banking sector registered a collective net income of P41.4 billion. The ADB said the amount could decline this year, but stressed that banks would still be profitable.

The ADB official, however, said a healthy banking sector would not be enough to accelerate the country’s growth to levels that will help reduce poverty.

He said the government should implement measures that would improve tax collections so that there would be enough revenues for infrastructure and social services.

The Philippines, Jain said, needed to grow by 7 to 8 percent yearly for 10 to 12 years to see a substantial reduction in poverty incidence which, latest estimates showed, was about a third of the country’s 90 million population.

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