The country’s biggest commercial banks are expected to sustain robust loan growth in the next two years amid an expanding economy, although global debt watcher Fitch Ratings warned of a potential overheating in real estate lending.
“Bank lending has grown rapidly amid a favorable economic and interest rate environment over the last few years. The system’s loan compound annual growth rate (CAGR) of about 16 percent over 2011-2016 has been roughly double the nominal GDP [gross domestic product] growth rate,” Fitch said in a report.
Fitch’s report, titled “Resilient Economy, Sound Balance-Sheet Buffers Support Stable Ratings,” covered six Philippine private banks: Bank of the Philippine Islands, Metropolitan Bank and Trust Co., BDO Unibank Inc., China Banking Corp., Philippine National Bank and Rizal Commercial Banking Corp.
“We believe domestic loan growth has generally been adequately supported by rising corporate earnings and improving household incomes,” Fitch said.
As such, Fitch said it expected loan growth across the six banks “to remain in the mid- to high-teens in 2017-2018, backed by the supportive economic outlook.”
The government targets GDP growth of 6.5-7.5 percent this year following the 6.8-percent expansion last year, which was among the fastest across emerging economies in Asia.
Fitch said it was expecting the Philippine economy to remain robust in 2017-2018, backed by expansion in both household and capital expenditure.
“Our real GDP growth forecasts for the Philippines over 2017-2018 are among the highest in Asia-Pacific,” it said.
It said it was expecting overseas remittances and business process outsourcing (BPO) activity—the two key drivers of domestic demand—would remain steady. The shift in global trade policies, it said, might pose a potential threat to these activities, the BPO industry in particular, but any significant deviation from such threats was unlikely for now.
“A commitment to economic policy stability and higher infrastructure investment under President Duterte—who took office in mid-2016—is positive for further economic expansion, and the authorities retain sufficient room to support economic growth, if needed,” Fitch added.
However, Fitch said overheating and over-investment would remain a risk amid persistent high loan growth, particularly since real estate activity had been a significant source of credit growth over the last five years.
“In that respect, the ongoing moderation in the residential property market—particularly in densely populated Metro Manila—should help curb unrestrained growth in the sector,” it said.