in october 2020 as banks pegged their treasury activities on liquidity positions. based on the survey, the bsp supervised financial institutions will maintain their strategy as the duration of their investments was reduced to maximize portfolio returns. the top universal and commercial banks did not introduce major changes in the composition of their portfolios as they assess liquidity risk. exposures are mostly concentrated in highly - liquid and investment grade instruments. as a natural consequence, profitability slides. banking operations were affected by the covid - 19 pandemic as the ( annualized ) net profit of the banking system shrank by 15. 8 percent year - on - year for the semester - ended september 2020. we however expect that other operating expenses will likely be reduced due to lower business volume and capital expenditures and non - essential expenses will be deferred. 4 / 7 bis central bankers'speeches based on the bsp supervised financial institutions ’ survey, the full year target for net interest income, other fees, operating expenses will drop while provisioning will increase. to mitigate the adverse impact of the pandemic on profitability, banks plan to impose cost - cutting measures ( e. g. deferred capital spending and freeze hiring of non - critical positions ), intensify loan collection activities, be stringent in loan monitoring, exercise prudence in loan releases, reduce cost of funds and boost marketing campaigns for new loans and deposits. the universal and commercial banks also intend to reduce their exposures to vulnerable sectors and to increase ancillary or fee - based business while thrift banks, and rural and cooperative banks want to fast track digitization initiatives to reduce operating expenses. moving on, banks remain well - capitalized. the capital adequacy ratio of the universal and commercial bank industry hovers at 15 – 16 %, well - above the minimum thresholds set by the bsp at 10. 0 percent and the bank for international settlements at 8. 0 percent. meanwhile, the banking system maintained sufficient buffers to meet liquidity and funding requirements. moving forward, the bsp will prioritize the following supervisory areas to ensure the soundness, stability, resilience and inclusivity of the banking system amid the ongoing health crisis. this slide shows the key supervisory areas that we are looking into – ● involvement of the board and management ; ● asset quality ; ● liquidity ; ● profitability ; ● capital adequacy ; and ● banking operations. we also fully support the

benjamin e diokno : philippine banking system - “ crossing the threshold ” for economic and financial recovery speech by mr benjamin e diokno, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the 53rd anniversary financial executives of the philippines, 14 january 2021. * * * finex president atty. francisco ed. lim, members and officers of finex, colleagues in the financial services industry and the government, esteemed guests, ladies and gentlemen, a pleasant good afternoon to all. i wish to thank finex, our reliable partner in financial deepening and capital market development, for inviting me to be a part of your 53rd anniversary celebration. before i share with you the bsp ’ s initiatives towards economic and financial recovery in the new economy, allow me to wish you all a healthy and prosperous new year, as well as, to congratulate both the outgoing and incoming officers of finex for leading the organization in these trying times. we now find ourselves in what i call the “ crossing the threshold ” moment. in the world of myths and movies, “ crossing the threshold ” occurs when the hero leaves his or her ordinary world and enters a new, dangerous world. your theme – transcending new frontier, leading beyond recovery – speaks volumes of this “ crossing the threshold ” stage in the hero ’ s journey arch. in the real world, we acknowledge that the covid - 19 pandemic continues to pose threats to economies and financial systems around the world, including the philippines. the philippine economy contracted by an average of 10. 0 percent in the first three quarters of 2020, following 21 years of uninterrupted growth. however, said economic contraction was not reflective of the country ’ s strong fundamentals or prospects moving forward. the bsp expects the recovery process to commence sooner as more industries re - open following the gradual easing of restrictions throughout the country combined with stimulus measures rolled out by the government. on growth, we expect real gross domestic product to swing from a range of negative 7. 0 to negative 9. 0 percent for the full - year 2020, to a range of positive 6. 5 to 7. 5 percent this year and an even faster growth in 2022. we anticipate interest rates to remain low, inflation to be manageable, the peso to be stable, and external accounts to be robust, with record - high gross international reserves. we expect inflation