By Lee C. Chipongian
To address threats and risks to a technologically-enhanced and digitalized banking sector, local banks are making use of more financial technology (fintech) for “strategic efficiencies” particularly in dealing with institutional risks, the latest Banking Sector Outlook Survey (BSOS) said.
The Bangko Sentral ng Pilipinas (BSP), which launched the BSOS last year and just released the second semester (2018) report, said that the banks “deem institutional risk as the main threat towards achieving their targets. Money laundering risk, hiring or retention of talents, and credit risk top the list under institutional risks of universal/commercial banks, thrift banks, rural/cooperative banks, respectively. Cognizant of the internal and external risks affecting their business, the BSOS discloses that banks are formulating strategies to address these concerns and will leverage on the use of fintech for strategic efficiencies.”
The survey noted that banks plan or are already using technology-enabled solutions and exhibits “strong interest in participating in the digital finance ecosystem”. In fact survey results for the first and second semester of 2018 showed that 71.1 percent and 73.5 percent of banks, respectively, have plans to use technology in the banking transactions.
“For the second semester of 2018, seven out of 13 or 53.8 percent of respondents from domestic universal/commercial banks that have plans to use technology, reveal that more than 10 percent to 25 percent of their banking transactions will be conducted through the use of digital technology in the next two years. Moreover, six out of 12 respondents from foreign universal/commercial banks state that more than 50percent of their banking transactions will utilize digital means,” according to the BSOS report.
In his own presentation recently in Bali, Indonesia, BSP Governor Benjamin E. Diokno highlighted the strides and efforts already made to ensure the infrastructure for fintech is in place and working in the Philippines.
“We recognize that certain emerging technologies transform or accentuate traditional financial risks such as credit, liquidity, market, operational and settlement risks. Thus, we want to make sure that our supervised institutions fully understand the mechanics as well as the associated risks prior to adopting these emerging technologies,” he told participants of the Bali Fintech Agenda organized by the Bank of Thailand on June 11, with the International Monetary Fund. “Furthermore, systems, network and technology platforms should be safe, robust and resilient against all forms of plausible vulnerabilities and threats, to include money laundering and terrorist financing, fraud and cyber threats.”
Diokno said that for fintech developments to grow and progress there are challenges not only for the BSP but for the government and private sector to overcome. “In the Philippines, which is composed of over 7,000 islands, access to affordable, reliable and fast internet and mobile data connection remains a formidable challenge. Thus, the BSP has to work hand-in-hand with other government agencies and contribute to national programs to push the digital agenda forward.”
“Another major challenge when it comes to monitoring fintech developments pertains to data collection, surveillance and analytics,” Diokno added. “This is because data regarding new entrants, service providers and firms outside the regulatory and supervisory radar of the BSP can be quite cumbersome and difficult to obtain. Beyond data collection, the BSP should continue to build capabilities for enhanced surveillance and data analytics which are crucial enablers in coming up with forward-looking policy and supervisory frameworks.”
Based on the BSOS report, the use of technology will continue to define the future landscape of the local banking sector. “A number of banks have already capitalized on electronic solutions or fintech to reach a greater scale,” it said. This move is in line with the BSP’s implementation of PESONet and Instapay under the National Retail Payment System framework.
Generally, the BSOS showed that banks have kept their optimistic views on the country’s economic prospects for the second semester of 2018, as 86.1 percent of banks surveyed said they expect the economy to growth 6-7 percent in the next two years. “More importantly, the outlook on the Philippine banking system remains stable for 70.2 percent of all respondents, with the rest mostly expecting a stronger banking system,” said the BSP.
The BSOS also showed that 72 percent of respondents expect double digit growth in industry assets and deposits, while 81 percent and 92.4 percent expect loans and profits to grow more than 10 percent, respectively. “The upgrade of the S&P Global Ratings Banking Industry Country Risk Assessment (BICRA) of the Philippines also contributed to the optimism,” said the BSP.
The survey also said that 75.8 percent of big banks want to expand market coverage while 84.4 percent of respondents expect double digit growth in assets and loans, respectively.