January 1, 2025 | 12:00am
MANILA, Philippines — As 2024 ends, the Bangko Sentral ng Pilipinas (BSP) and the Philippine banking sector are poised to tackle a pivotal year ahead. With economic challenges and geopolitical uncertainties looming, optimism about the sector’s resilience is tempered by cautious preparation.
In an interview with The STAR, BSP Deputy Governor Chuchi Fonacier said the central bank remains confident in the banking system’s capacity to thrive this year.
“The outlook for the Philippine banking system remains optimistic. Based on a two-year horizon, banks project double-digit growth in assets, loans, deposits and net income,” Fonacier said.
She said the two-year forecast is supported by expectations of improved loan quality and continuous strengthening of loan loss reserves.
She said Philippine banks are also committed to maintaining robust capital and liquidity buffers that are above regulatory standards, with strategic priorities focused on credit expansion, operational efficiency and digitalization.
Based on the latest BSP data, profit of banks operating in the Philippines rose by 6.4 percent to P290.1 billion from January to September 2024 compared to the previous year’s P272.6 billion.
This was supported by robust loan growth, as loans disbursed by universal and commercial banks amounted to P12.5 trillion in end-October last year, up by 10.6 percent from the P11.31 trillion recorded in the same period in 2023.
“Overall, the Philippine banking system is well-positioned to navigate the evolving economic and financial landscape,” Fonacier said.
However, while the sector is brimming with potential, analysts caution that 2025 will require deft navigation of local and global challenges.
Miguel Chanco, chief emerging Asia economist for Pantheon Macroeconomics, warned that real monetary policy would remain tight this year due to the aggressive tightening cycle from 2022 to 2023.
“Looking into 2025, it will naturally take some time for the BSP’s rate cuts to impact economic growth positively. We probably won’t see any material boost in activity until 2026, at the earliest,” Chanco said.
“It’s worth remembering that, given the extent of the aggressiveness of the tightening cycle in 2022 to 2023, monetary policy in real terms (that is, rates adjusted for inflation) will remain historically tight through all of this year, even if our base case is that the key rate is brought down to 4.75 percent by end-2025 comes to fruition,” Chanco said.
The BSP delivered a total of 50 basis points worth of rate cuts since August as it shifts toward a less restrictive monetary policy. This brought the key rate down to six percent from 6.5 percent previously.
To tame inflation and stabilize the peso, the BSP previously raised key policy rates by 450 basis points from May 2022 to October 2023
Balancing growth and stability
Inflation, although moderating, remains a persistent risk for next year, given possible external shocks such as rising global oil prices or supply chain disruptions.
John Paolo Rivera, a senior research fellow at the Philippine Institute for Development Studies, said the BSP must strike a balance between managing inflation and supporting economic growth.
“Lower interest rates are expected to stimulate consumption and investment, but the BSP must balance growth support with inflation control to avoid eroding purchasing power,” he said.
Rivera said that policy adjustments in 2024 would likely have a mixed impact on the Philippine economy and the banking system next year.
Rivera said that lower interest rates could help stimulate consumption and investment, which have been constrained by high borrowing costs in the previous quarters. A looser monetary policy could encourage banks to increase lending, supporting businesses and households.
“On the flip side, lower interest rates could squeeze net interest margins, potentially impacting profitability. Banks must innovate to diversify income sources and enhance digital banking services,” he said.
“The BSP’s emphasis on financial stability will require banks to maintain robust capital buffers and adopt more sophisticated risk management strategies, especially in light of global economic volatility,” Rivera added.
Geopolitical crossroads
Adding to the complexity is the geopolitical uncertainty surrounding Donald Trump’s return to the US presidency.
UnionBank chief economist Ruben Carlo Asuncion warned that reshoring policies and stricter immigration enforcement could impact key economic pillars for the Philippines.
This includes the business process outsourcing (BPO) sector and remittances from overseas Filipino workers (OFWs).
“BPOs are on the firing line of the potential negative impact of Trump’s reshoring efforts, while OFW remittances may be affected if US president-elect Trump eventually pushes through with his mass deportations,” Asuncion said.
He also noted that US Ambassador Jose Manuel Romualdez advised a significant number of undocumented Filipinos in the US to leave voluntarily.
Personal remittances rose by 3.3 percent to $28.07 billion from January to September versus last year’s $27.24 billion.
During the nine months, cash remittances increased by three percent to $25.23 billion from $24.49 billion. The US had the highest share of overall remittances, with 41.3 percent.
“Thus, the role of the BSP will be very significant as well. It would have to play a careful balancing act of pushing for more monetary easing and allowing the economy to grow faster post-inflation surge of 2023 to 2024, while making and keeping the economy more attractive for investments via interest rate differential versus the US,” Asuncion said.
As the country heads into 2025, the BSP faces the dual challenge of supporting economic growth while addressing external uncertainties and inflation risks. With robust planning and resilience, the banking sector is poised to play a pivotal role in steering the Philippine economy toward stability and long-term prosperity.
While the road ahead remains uncertain, the groundwork laid by the BSP and the banking industry offers a measure of optimism. Whether 2025 marks the start of a sustained recovery will depend on how well the country can adapt to a rapidly shifting global and domestic environment.
Be the first to comment