Banking and Beyond: Why There’s More to Come in 2016

For the first time in a long time, the Philippine economy is booming in a way that citizens haven’t seen before. And while not everyone can understand the depth of the terms, even the most ordinary of citizens can understand the fact that they can actually spend more on food, travel, and different forms of leisure.

A report made by the Asian Development Bank released late last year says, “Consumption and private investment remained robust, supported by higher employment, low inflation, and rising remittance inflows.” In August, inflation ebbed at a 0.6%, which reflected in a global slide of oil prices and soft food costs.

This led to additional growth in private investment and household consumption, which can be credited to employment, consistent remittances and low oil process. The service industry also provided in the growth of the finance sector of the country getting its main source from popular BPOs, tourism, and retailing services.

Because of the energetic cash flow witnessed by the country late last year, citizens are more comfortable when it comes to spending which proves to have an overall good effect on the country and the banking section. 

And while most Filipinos are excited over what the last year brought, it is expected that the banking sector is to grow even more in 2016.

The Jump from 2015 to 2016

The beginning of 2015 saw a minor pullback in growth for the Philippine economy. However, it is expected to bounce back this year due to a pick up in government spending and exports. It is projected by the Asian Development Bank for the Philippines’ GDP to grow to a robust 6.3%. The growth in fiscal spending which is greatly affected by the upcoming elections will definitely boost the domestic economy. Enacted reforms by the government will also help improve competitiveness and investment that will solidify the growth of the country.

Taking in all the growth is the expanding banking system of the Philippines.

Positive Fitch Rating and its Effect on the Banking System

Granted a positive Fitch Rating in December of last year, the Philippine banking system is expected to have a positive and healthy amount of growth in 2016. The positive rating was given despite the projections of it being a tough year ahead for financial systems in the Asia and the Pacific (APAC) due to China’s slowing economy and expected higher borrowing costs in the United States. However, the Philippines was given this positive rating due to the generally healthy profile of local lenders, sound operating environment and the Philippines’ strong economic fundamentals.

In fact, in the entire scope of APAC, the Philippines is the only banking market that has been given a positive rating outlook for this year further cementing the stability of the Philippine banking sector.

The Fitch brief therefore explains its effect stating that the effects of the positive effect may not be in effect immediately but the trends that the banking industry is engaged in will definitely bring about positive results in the next two years. The positive outlook reflects the direction that the banking industry is headed and for the debt watcher, the growth is inevitably positive.

The qualities that strengthened the position of the banking industry include the “Philippine banks’ high capitalization, healthy funding and liquidity, and satisfactory loan-loss reserves help to balance the risks from relatively high credit growth in the past few years”. 

The Banking Industry in 2016

For an outsider, the banking industry looks one and the same. However, for experts, the banking industry in the country is experiencing growth in a way that it hasn’t in a long time. Growing consistently since the beginning of 2015 increasing profits by at least 10.7 percent in the first quarter alone, the sector’s performance is definitely impressive.

The growth has been seen since 2014, where the banking sector took off by growing 12 percent due to an increase in loans and portfolio investments. It also helps that people are wiser when it comes to investments and are more willing to invest which has increased the need for loans and portfolio investment.

Because of the steady growth experienced in the last two years alone, the banking sector is looked upon with optimism. In fact, at the beginning of last year, Bangko Sentral ng Pilipinas (BSP) boasted a presence of about 648 different banks, 9,700 branches, 15,695 ATM machines, 517 offices of microfinances institutions and 251 banks with e-Banking facilities which include online services and mobile banking. 

Another credit-ratings agency, Moody, once credited the success of the banking sector to the following factors: consistent robust economic growth despite the slowing global demand, moderate inflation, and an improved standard of the banking sector’s asset quality which led to the prevention of the overheating of domestic asset markets. 

The structural transformation that the industry underwent beginning in 2014, which removed the restrictions on the degree of foreign bank ownership, has also bolstered the growth of the industry. Once the caps have been lifted, foreign banks have entered the country consistently. President Aquino’s desire to attract more foreign investments has fueled the sector even more bringing in even more interest from foreign banks especially since the full Association of South East Asian Nations (ASEAN) banking integration is expected in the very near future.   

It is this foreign interest that fuels the industrial structure and competitiveness of the Philippines’ banking industry. 

ASEAN Integration

The industry is also set for brighter things to come because of its inclusion in the “ASEAN 5” joining the ranks of Thailand, Malaysia, Singapore, and Indonesia. The ASEAN Banking Integration Framework (ABIF) agreement, which was signed in March of 2015, is expected to change the banking landscape of all member nations by 2020. As part of the “ASEAN 5”, the Philippines is expected to play a bigger role in this integration.

The ASEAN integration is rather simplistic. With this integration, 10 separate economies will be merged into a single market that provides an enormous base within which consumers and providers can operate. The single base is significant and that is which that can outpace the race of the world. With an integrated market, ASEAN will eventually be the 4th largest economy by 2050.

And while the road to this is not without challenges, it is expected to bring forth the changes that the country needs to propel even further.

In fact, even the BSP believe that the local banking industry is ready for the full financial integration. Late last year BSP Governor Amando Tetangco Jr. was quoted saying said that while the local banking industry needs more preparation, it is actually more than ready.

The banking industry’s position of strength as an industry and individually with the local banks upping their game by providing e-banking opportunities to consumers is contributing to the positive changes. 

Movers and Shakers in the Industry

The local banking industry grew by 11.6 % between 2010 and June 2015 and this can mainly be attributed to the country’s four biggest banks: Bank of the Philippine Islands, BDO Unibank, Metrobank, and Land Bank of the Philippines, which reflect 45% of total assets. 

In the past year alone, the country’s four megabanks have changed the landscape of the country by providing different banking solutions with focus on e-banking communities. These four banks have become more flexible by providing services not possible before. 

Financial technology has positively transformed the industry and is the future of the local banking industry. Today, consumers are more aware of e-banking technology, making transactions easier as compared to the old school over the counter transactions. 

The banking industry is also keener to provide financial literacy education to their consumers. Today, banks are more than just a place where consumers can store money but actually invest their money in. Banks become a symbol of financial literacy and people’s trust in financial institutions is growing.

Banks are also entering “micro deposit accounts” which focus on giving out accounts that have low or minimum deposits with no service charges. This flexibility gives more people the chance to be involved with banks than any time in history. 

Electronic money or “emoney” is also gaining traction and has grown steadily over the years. The many banking options have boosted the financial market into the stability that it is experiencing presently.   

Looking Ahead in 2016

In a speech given earlier by Governor Tetangco Jr., he noted that the Philippine banking sector was a “source of strength and stability for the economy in 2015.” Banks continued to be the major source of funding for productive sectors that eventually helped in generating jobs that supported inclusive growth across the country.

The sustained growth and stability of the banking sector in 2015 despite global financial turmoil spoke volumes about the strength of our banking sector. Banks were tested with resilience but this has made them stronger and more stable. 

Today, the banking sector begins 2016 from a position of strength because the best is yet to come.

Topics: Banking , Asian Development Bank
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