PHILIPPINE BANKS are likely to see double-digit increases in total loans over the next two years, with the rising share of consumer credit unlikely to be a cause of concern as the lenders remain well-armed against potential shocks, Fitch Ratings said in a report.
Basing its assessments from six privately owned commercial banks, the credit rater said Philippine lenders are likely to see sustained expansion as it rides on the country’s rosy growth story.
“We expect Philippine GDP growth to remain resilient in the near term, backed by strong domestic activity, despite potential external headwinds to overseas remittances and business process outsourcing (BPO) flows — two key pillars of the economy. Credit demand should stay upbeat against this backdrop, although this places greater demands on the banks’ operating frameworks as they expand,” read Fitch’s special report on Philippine private commercial banks published yesterday.
Last month, Fitch affirmed its ratings for the Bank of the Philippine Islands (BPI), Metropolitan Bank & Trust Co. (Metrobank), BDO Unibank, Inc. (BDO), China Banking Corp. (CBC), Philippine National Bank (PNB) and Rizal Commercial Banking Corp. (RCBC), pointing out strong profiles and improving asset quality.
Big banks BPI, BDO, and Metrobank currently hold a BBB- rating with a “stable” outlook, while the mid-sized lenders CBC, PNB, and RCBC held ratings at BB+ also with a “stable” outlook.
The Philippine economy expanded by 6.8% in 2016, propped up by a surge in investments and upbeat consumer spending that placed the country as one of the fastest-growing in the region. Such a pace is seen sustained over the next two years to 2018, which in turn would propel loan growth.
Receipts from overseas workers’ remittances and the booming BPO industry are likewise seen intact, despite fears of global policy shifts that could affect inflows. In turn, an infrastructure push under the Duterte administration is seen to support further economic growth, Fitch added.
“We expect loan growth to remain in the mid- to high-teens in 2017-2018, backed by the supportive economic outlook,” the report read, although pointing out that a slowdown in home loans would help curb a possible “overheating” in the property sector.
“The banks’ shift in focus to the consumer-lending segment may lead to higher NPL (non-performing loan) formation, but we expect the broadly steady operating environment to continue to support their overall asset quality in the near term.”
Commercial lending posted a 17.2% increase in 2016, picking up from a 13.6% pace clocked in a year ago.
Meanwhile, big banks saw a lower share of bad loans at 1.4% of its portfolio, improving from a 1.6% share in 2015, according to central bank data.
Philippine banks also remain equipped with enough buffers to withstand a funding crunch, with enough liquid assets and healthy funding profiles against a lower share of soured debts.
“We expect the banks to maintain reasonable buffers above their minimum requirements, which should provide a comfortable buffer against moderate credit shocks,” Fitch added, while pointing out that the six banks mentioned in the study are likely among the domestic systemically-important banks monitored by the central bank.
