The banking industry’s outlook for the next two years remains optimistic based on the 2023 Banking Sector Outlook Survey (BSOS). Overall, respondent banks expect double-digit growth in their assets, loans, deposits, and net income, as well as plan to maintain robust capital and liquidity positions to maintain institutional stability.
The results, likewise, point to improvement in the banks’ expectations on the quality of their loan portfolio as fewer respondent banks, down to 48.7 percent from 52.4 percent in the 2022 BSOS, anticipate a non-performing loan (NPL) ratio of above 5 percent in the next two years. Across banking groups, most foreign banks and universal and commercial banks are optimistic, with the former anticipating a less than 1 percent NPL ratio while the latter foreseeing their NPL ratio to settle within the range of 1 to 5 percent. In contrast, smaller banking groups are more pessimistic, particularly the majority of thrift, rural, cooperative, and digital banks expect their NPL ratio to be over 5 percent. In terms of loan loss provisions, the majority of respondent banks plan to maintain a high NPL coverage ratio thus, ensuring adequate coverage of potential losses in their loan portfolio.
Relatedly, restructured loans are projected to be a small percentage, or at 2 percent, of total loans for most respondent banks.
As to priorities, most respondent banks indicate that they will continue to focus on corporate and retail lending, providing financial support to sustainable and green projects, including key sectors such as micro, small, and medium enterprises, real estate, and households. More than half of respondent banks are also investing in digital transformation to enhance their financial products and services.
Moreover, respondent banks disclose that credit, operational, and macroeconomic risks remain their primary concern, and as such they are actively enhancing their risk governance to safeguard interest of their depositors, and investors, as well as maintain the safety and soundness of their institutions.
