AMID macroeconomic headwinds, the banking sector remains optimistic about this year and the next, the Bangko Sentral ng Pilipinas (BSP) said on Thursday.

"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," it said in a statement announcing the findings of the 2023 Banking Sector Outlook Survey (BSOS).

The outlook was held by the majority of the surveyed banks, the executive summary of the BSOS report states, with over half also expecting double-digit growth in their securities holdings — interpreted by the BSP as an intention to actively participate in the capital market.

"Moreover, most respondent banks plan to maintain their risk-based capital, leverage and key liquidity ratios at levels higher than domestic and global standards to ensure continued institutional stability," the summary adds.

Fewer banks — 48.7 percent of the respondents, from 52.4 percent in the 2022 poll — expect a nonperforming loan (NPL) ratio of above 5.0 percent.

Of the remainder, 29.4 percent projected an NPL ratio below 3.0 percent while 21.9 percent said it would fall between 3.0 percent and 5.0 percent.

Universal and commercial banks were particularly optimistic, with 84.6 percent predicting NPL ratios between 1.0 and 5.0 percent. This improved from 77.8 percent in 2022.

Thrift banks, rural and cooperative banks, and digital banks remained more cautious, with many anticipating NPL ratios above 5.0 percent — similar to the previous year's poll.

Half of the foreign banks surveyed, meanwhile, projected an NPL ratio of less than 1.0 percent, unchanged from 2022, while 20 percent (from nil previously), expected ratios ranging from 2 to 3 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," the BSP said.

Restructured loans were seen accounting for 2 percent of total loans for most respondent banks, it added.

In terms of lending, banks said that they would continue to prioritize corporate and retail lending, followed by payment and settlement services, investment banking and cross-selling.

Most of the banks said that their lending would support key sectors such as micro, small and medium enterprises, real estate and households.

The majority (71.9 percent) of banks also said that they had adopted digital transformation road maps, with 2.9 percent ahead of schedule and 43.8 percent on track. However, 23.8 percent reported being behind in their digital initiatives.

"More than half of respondents are willing to partner with a fintech (financial technology) company with the objective of offering innovative digital financial products or services in the next two years," the BSOS report's summary states.

"The products and services that respondent banks intend to deliver in partnership with fintech players include loans, payments, mobile and online banking and remittance."

Sustainability has also gained traction within the industry, the report found, with 71.5 percent of banks (up from 70 percent a year earlier) acknowledging the importance of sustainable financing. Most said they were keen to fund agriculture, renewable energy and water management projects.

Credit risk, meanwhile, continued to be viewed as the predominant risk to banking operations, followed by operational and macroeconomic risks. The primary risk was unchanged from the 2022 BSOS.

Banks said they were working on strengthening risk governance frameworks to safeguard depositors, investors and institutional integrity.

"Parallel to these, the BSP remains committed to promoting a sustainable, digital and inclusive banking future," the central bank said in the report.

"In line with this, the BSP will continue to implement timely and relevant policy reforms aimed at promoting institutional stability and financial sector resilience, advocating responsible innovation and fostering sustainability in the financial system," it added.