The BSP publishes today the Maiden Report on the Banking Sector Outlook Survey (BSOS) for the First Semester of 20181. The BSOS gathers the sentiments of the Presidents/Chief Executive Officers/Country Managers of 114 banks in the country related to their growth outlook and risk assessments, business performance strategies, and insights on regulation and supervision within a two-year horizon. It is also part of the BSP’s surveillance toolkit to promote the sustained resilience of the banking system.
Survey results reveal that about 66.7 percent of the respondents consider a stable outlook for the banking system while the remaining 33.3 percent view that banking system will be stronger in the next two years. This is anchored on the respondents’ economic growth forecast of 5 to 7 percent. The stable outlook for the banking system can be attributed to the strong macroeconomic fundamentals, adequate liquidity, rising capital buffers and profitability of banks.
Majority of the respondents believe that expanding client base, deepening of customer relationships, and developing new products are necessary to grow the bank. With the rapid pace of digital technology reshaping the banking industry, respondents underscore the need to optimize available technology. The banking industry supports the use of technology-enabled solutions as survey results reveal that 81 out of 114 or 71.1 percent of respondent banks have plans to use technology in the banking transactions in the next two years. Managing reputational and operational risks2, data and cybersecurity enhancement, upholding consumer protection, and increase of capital and liquidity ratios are also deemed important to protect the bank.
All the banking group respondents except for those from R/CBs3 mention that compliance with mandatory credits to Agri-agra and MSME4 as the most challenging area in terms of compliance. Respondents also cite that compliance with the BSP’s reportorial requirements and regulation on anti-money laundering remains an ongoing concern.
Overall, the maiden conduct of BSOS discloses the banks’ awareness of internal and external risks affecting their business. The BSOS similarly shows that banks are formulating strategies to address these concerns while positioning for opportunities particularly from financial technology (fintech). Bullish outlook implies that banks will continue to support the sustained development of the national economy. This resonates with the BSP’s overarching policy objective to promote a stable and sound banking system that is globally competitive, dynamic and responsive to the demands of a developing economy.
1 The full text is also released in electronic format as a downloadable PDF file on the BSP website (http://www.bsp.gov.ph/publications/regular_PBSOS.asp).
2 New risks emerge with the rapidly changing technology, intense competition, and evolving regulations and international standards. Most of the respondents are satisfied with the risk culture in their respective banks. Meanwhile, 89 out of 114 or about 78 percent of respondents emphasize the importance of enhancing risk management system to strengthen the banks against external headwinds.
3 Refers to rural and cooperative banks
4 Refers to the mandatory credit requirement of 25 percent to agri-agra beneficiaries under the Agri-Agra Law or Republic Act No. 10000 dated 23 February 2010 and the mandatory credit requirement of 10 percent under the Magna Carta for Micro, Small and Medium Enterprises (MSME) or Republic Act No. 9501 dated 23 May 2008