Slump to slash bank revenues, RCBC exec says
WITH the economy still slow to recover from the lockdown measures against an infectious virus, a bank executive believes financial intermediaries will continue to face challenges in the coming years, including revenue cuts.
Rizal Commercial Banking Corp. (RCBC) President and CEO Eugene S. Acevedo said that the current economic slump will still affect operations and financial position of banks in the months after the country bid farewell to 2020.
“This is what I see in the next few years,” he said in a webinar last Thursday. “First, the banking community will have to learn to live with lower revenues, narrower margins and higher credit costs.”
The Philippine banking system saw net earnings in the first nine months of the year plunge by 26 percent to P126.78 billion from P171.16 billion year-on-year as financial intermediaries scrambled to increase provisions for credit losses.
Acevedo also noted that the monetary authorities’ decision to put an interest-rate cap on credit card transactions as a “major challenge.” Nonetheless, he said the banking sector has “accepted” the regulator’s decision.
Effective November 3, the annual interest rate cap on credit card transactions was capped to 24 percent, which is lower than the average of 47 percent previously. Economists have told the Business Mirror that putting a ceiling on credit card interest rates can affect the net interest margin and profitability of the banking sector.
Acevedo believes this regulatory move would lead to a slowdown in consumer loans and to clients keeping cash in their pockets and borrowing less.
“Customers, especially those whose incomes are adversely affected, have started to become more conservative; understandably so,” he said.
In general, banks have observed a decline in lending growth. The Bangko Sentral ng Pilipinas reported in October that the growth of outstanding loans of big banks slumped further at 1.9 percent from 2.6 percent in September because of “muted” business confidence and tighter lending standards.
“A number of our corporate and industry clients will take longer to recover to pre-Covid levels,” he added. “Some economists are saying late 2021 and even 2022.”
For its part, Acevedo said that RCBC intends on remaining competitive to stay afloat amid an economic meltdown.
“One, we got to differentiate ourselves from other banks and from fintechs [financial technology firms],” he explained. “We need to provide the best customer experience by reengineering our traditional products and eliminating unnecessary steps.”
Acevedo cited as example the formation of “in-house capability” in data science and digital marking to improve his company’s digital offering.
Acevedo’s views are backed by RCBC’s experience after the Duterte administration’s lockdown measures led the engines of the economy to slow down beginning mid-March.
The Yuchengco-led bank saw its net income drop by 11.3 percent to P4 billion in the first nine months from P4.5 billion year-on-year amid higher provisioning for potential credit losses.
As of end-September, the bank’s assets stood at P731 billion. Capitalization for the period reached P99.49 billion, translating to capital adequacy ratio and common equity tier 1 of 15.8 percent and 12.4 percent, respectively.
Last Thursday, shares in RCBC fell by 0.63 percent, or 12 centavos, to close at P19.08 each amid the 0.73-percent rise for the benchmark index.