THE Philippine banking industry has room to develop in the coming years, but it must also focus on bringing financial access to smaller and informal sectors of the economy, a World Bank official said.
Nataliya Mylenko, WB senior financial sector specialist, said the Philippine banking system is relatively small compared to those of Vietnam, Indonesia, Thailand, and Malaysia in terms of asset value and relative to the size of the country’s gross domestic product (GDP).
“In the Philippines, one can clearly see that there must be some opportunity because the size of the asset is small and the total asset to GDP is quite small—which means there is room for growth,” Mylenko said during The Manila Times’ 4th Business Forum held at the Marriott Hotel Manila, in Pasay City.
Philippine banks’ total asset to GDP ratio stood at 93 percent in 2015. Credit-to-GDP ratio in the Philippines also remained low compared to other countries in the region, increasing slowly from 32 percent to 39 percent over the last 10 years.
In a presentation titled “Philippine Banking System: Opportunities and Challenges,” Mylenko also said, “There appears to be a headroom if we compare Philippines to Asean [Association if Southeast Asian Nations] countries for the continued expansion of intermediation in the private sector.”
Small sectors overlooked
In particular, the allocation of the industry’s loan portfolio showed that bank lending is biggest to “other” sectors at 28 percent, followed by real estate, and then by wholesale and retail trade and manufacturing, Mylenko explained.
Agriculture accounts for just 3.0 percent of the loan portfolio even with the Agri-Agra law that requires banks to set aside 25 percent of their loan portfolio for the agriculture and fisheries sectors.
“A similar dynamic is the SME [small and medium enterprises]loans, because there is a requirement of a 15-percent loan portfolio for SME lending. We also see that this is a segment where banks are finding hard to comply with,” she said.
She said credit growth is strong but not across all sectors because agriculture has negative growth.
Mylenko also cited a World Bank report showing that only about one in three Filipinos has a bank account. The World Bank’s Global Findex Database for 2014, released just this month, reveals that 31.3 percent of Filipino adults own a formal financial account, up from the baseline figure of 26.6 percent reported in the 2011 Findex.
Formal account refers to an account held in financial institutions such as banks, cooperatives or microfinance institutions and can be a mobile money account as well.
“That growth is not particularly strong,” she said, noting that this indicates there are plenty of opportunities for banks to grow if they could only tap the rest of the unbanked Filipinos.
The survey showed that 38 percent of Filipino adults use informal credit products and 34 percent use informal savings. This is in contrast with the small percentage of Filipinos who use debit cards, formal credit, credit cards and mortgage.
“I think there is a gap in the market and finding the right way to approach sectors and looking at the small businesses is a challenge for the Philippine banks,” she said.