The International Monetary Fund recently expressed confidence in the strength of the Philippine banking sector over the next two years, but warned of possible vulnerabilities, particularly in the real estate sector and growing consumer credit.
IMF mission chief Elif Arbatli-Saxegaard said the country’s banking sector has robust capital and liquidity buffers, but advised continued vigilance from the Bangko Sentral ng Pilipinas against risks.
Saxegaard said the real estate sector underwent significant shifts during the pandemic, including the rise of work-from-home arrangements and changes in business process outsourcing operations. There are some segments in the commercial real estate market where vacancy rates remain quite high and this should be monitored carefully.
The IMF also called attention to the fast growing consumer credit market. Although credit expansion in the sector started from a low base due to the pandemic, its rapid increase raises concerns on the quality of borrowing. IMF resident representative Ragnar Gudmondsson said the non-performing loan level in the residential real estate market is high at 7 percent when the current industry standard is only about 3.5 percent.
Because of such vulnerabilities, they are encouraging effective supervision and monitoring.
They expect Philippine banks to continue to enjoy high profitability, and that adjusting government policies as credit growth picks up will help mitigate the build-up of vulnerabilities. They also encourage the country to maintain the current momentum of the country’s exit from the Financial Action Task Force’s gray list.
The positive outlook for the banking sector is always welcome, and vulnerabilities are always normal, even among advanced and stable economies. The key is having the government agencies responsible that are paying attention to ensure that our exposure is minimized so we can maximize the benefits without having to worry so much over what could go wrong.*
