The Effect of Covid-19 to the Banking Industry in the Philippines

I. Industry Stability

The economy of the Philippines was highly affected due to the pandemic, Covid-19. This

virus is not in favor to the growth, progress and development of our country. It highly affects

different sectors such as the business sector, insurance industries, and banking operation

locally. On the other hand, despite of this crisis the banking industry remains stable as it is able

to withstand to said phenomenon. According to Diokno (2021) while the full extent of the

pandemic is still unknown, the good news is that the Philippine banking system is expected to

withstand the pandemic's impact. He also stated that the financial system is well-positioned to

sustain the significant economic impact of the COVID-19 pandemic while also assisting the

country's economic recovery. In the next two years, the domestic banking system is expected to

remain relatively stable. In addition, majority of respondents to the Banking Sector Outlook

Survey predicted that real GDP growth would return to a range of less than 6.0 percent to 6.3

percent. Similarly, 69 percent of responding banks forecasted a stable Philippine banking

system.

II. Profitability Slides

The pandemic highly affect the banking operation in the Philippines resulting to affect the

profitability in a not so good manner. According to Diokno (2021) Banking operations were

harmed by the COVID-19 pandemic, as the banking system's (annualized) net profit fell 15.8

percent year on year for the semester ending September 2020. For this reason they expect to

lower operating expenses and cut down unnecessary expenses to off-set to the downfall of

profit. He also states that in order to counteract the pandemic's negative effect on profitability,

banks intend to implement cost-cutting measures (e.g., postponed capital expenditures and

hiring freezes for non-critical positions), increase loan collection efforts, tighten loan control,
exercise caution in loan launches, lower funding costs, and improve marketing strategies for

new loans and deposits. Therefore, operating and other expenses expected to drop while

provisioning will increase.

III. Digital Banking as Priority

The most common way to open bank accounts, check balances, make deposits and

check payments, and other bank transactions is through face to face. This is until the COVID-19

pandemic emerges, that affect the mode of transactions for every business including bank

industries. Due to health protocols implemented by the government, banks have no choice but

to find ways to reach out their client, and one of these ways is through digital banking. The

consumer demand for digital banking has increased dramatically during pandemic (FinScore,

2021). Most of the commercial banks have their online banking services applied by their clients

for convenience purposes. However, this online banking services become in demand to comply

with the protocols. Every single day, commercial banks have new sign-ups on their online

banking services. COVID-19 has become a digital banking wake up call for both customers and

financial institutions, since social alienation will definitely become the "new normal." From

establishing new accounts to applying for loans, banks and financial institutions must improve

their game in order to enable banking processes without requiring customers to visit physical

locations.

IV. Bayanihan Act, RA No. 11469

Due to the pandemic Covid-19, people starting to lose their job resulting to financial

inadequacy. For that reason, it becomes hard for the people to provide for their needs to survive

daily living. Also, people with existing debts and loan are problematic on how they can comply to

the agreed credit terms with the creditor or banks. On the other hand, Central Bank of the

Philippines makes their move on how they can assist people regarding the said matter.
According to PricewaterhouseCoopers (2020) the implementing rules and regulations for the

Bayanihan Act RA No. 11469 were issued by the Central Bank of the Philippines. The law

requires all lenders subject to BSP supervision to provide borrowers with a 30-day grace period

or extension for payment of loans due within the enhanced community quarantine period,

without imposing additional interest, penalties, or charges. Through this, the industry may

effectively control and collect the loans. In addition, the Central Bank of the Philippines relaxed

the know-your-customer (KYC) requirements for both in-person and electronic or online

transactions. This is to ensure that Filipinos continue to have access to basic government and

financial services in the midst of the COVID-19 crisis.

V. Organizational Agility

Organizational agility refers to a company's capacity to modify or adapt quickly in

response to market developments. During pandemic, businesses including banks, reacted to

uncertainties unforeseeably that hamper their performance. In order to adapt this sudden

change, organizations are required to be agile. They need to respond differently to certain

issues (PricewaterhouseCoopers, 2020). Banks, like other businesses during their early stage

learn to adapt and sustain to tight competition in the market, make products, reach the peak of

success, and continually improving until its withdrawal in the market. However, in times of

natural catastrophe, organizations need to be agile around customers that it requires new ways

of working and requires large workforce as they are facing difficulties in digital and human

interactions. Organizational agility cannot be ignored, despite that it will be costly for some

circumstances. Organizations should empower their employees, through making them

independent of their decision aligned with the organizations objectives, embracing disruption,

and experiment with how the work gets done (Carlson, 2020).
VI. Industry Transparency

As the mode of transaction is changed due to the pandemic, governments also are doing

their job to provide support to businesses in record time in the wake of COVID-19. Traditional

approaches to ensuring fiscal transparency, public accountability, and institutional credibility

have been questioned by the unprecedented size and pace of the response (International

Monetary Fund, 2020). In a turbulent economic climate, the main challenge is to strike a

balance between urgency and timeliness of response while maintaining accountability in the

detection and presentation of response steps. The use of digital payments or mobile banking to

pay cash deposits is one choice for increasing transparency. In case of loan and guarantee

programs, national development banks' existing liquidity schemes should be extended to give

impacted businesses easier access to loans. Emergency loans and guarantee schemes may be

aimed at the whole economy or at a certain group of economic actors. At some point, the banks

are required to ensure all regulatory decisions are subjected to legislative oversight and are

legally sanctioned. In addition, banks establish specific eligibility requirements for crisis-related

interventions in the budget and maintaining data granularity. Lastly, banks should be assessing

and revealing the effect of the recession on the economy and public finances.

CONCLUSION

The occurrence of this unpredictable event, the pandemic, it creates a major effect and

changes to banking industry in the Philippines. When it comes to profitability, pandemic has a

huge impact resulting to the down fall of net profit by 15.8 percent year on year for the semester

ending September 2020. Fortunately, despite of this phenomenon, banking industry is expected

to be stable and would work effectively in the next two years of operation. Also, organizational

agility must be practice in order to withstand the Covid-19 pandemic. The industry should have

the capacity to modify or adapt quickly in response to market developments. In addition

changes on banking operation happened causing to digital banking to prioritize. Due to

government-imposed health guidelines, banks have little choice but to discover new means to

communicate with their customers, one of which is through digital banking. Furthermore,

Bayanihan Act RA No. 11469 was imposed. It aims to give the borrower more time to pay their

maturing obligation through extending credit terms with a 30-day grace period or extension for

payment of loans due within the enhanced community quarantine period, without imposing

additional interest, penalties, or charges. Therefore, it is clearly that this pandemic has its own

effect that creates major changes to the operation, system and process of the said industry.
References:

Carlson, J. (2020, May 22). What is Organizational Agility & Why is it Necessary for Success?

GuideSpark. Retrieved from https://www.guidespark.com/blog/organizational-agility-for-

business-success/#:%7E:text=Organizational%20agility%20is%20a%20company’s,to

%20market%20changes%20is%20Amazon.

Diokno, B. (2021, February 12) Philippine banking system - "Crossing the threshold" for

economic and financial recovery. Retrieved from

https://www.bis.org/review/r210212l.htm#:~:text=Banking%20operations%20were

%20affected%20by,the%20semester%2Dended%20September%202020.

FinScore (2021, April 23). Going Digital: The Philippines’ Banking Industry’s Best Bet to Fight

Covid-19 | FinScore. FinScore.Ph. Retrieved from https://www.finscore.ph/going-digital-

the-philippines-banking-industrys-best-bet-to-fight-covid-19/

International Monetary Fund (2020). Keeping the Receipts: Transparency, Accountability, and

Legitamacy in Emergency Responses. Retrieved from https://www.imf.org/en-special-

series-on-covid-19-keeping-the-receipts.pdf

PricewaterhouseCoopers (2020, March 12). Where is the banking industry headed in 2020?

[Video]. YouTube. Retrieved from https://www.youtube.com/watch?v=C1oyGROlJpY

PricewaterhouseCoopers. (2020, April.). Covid-19: Perspectives for the philippine banking

industry. Retrieved from https://www.pwc.com/ph/en/industries/industry-publications/covid-

19-perspectives-for-the-philippine-banking-industry.html