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S&P: Banks in lockstep with country’s growth

/ 05:10 AM August 24, 2017

The banking sector will benefit from the sustained economic growth, with its loan portfolio receiving a big boost in the next two years, according to debt watcher S&P Global Ratings.

“Philippine banks are enjoying a good run, thanks to the country’s robust economic performance,” S&P said in an Aug. 22 report titled “Philippine Banks To Continue To Ride Robust Economic Growth.” The same report indicated the gross domestic product (GDP) could grow by 6.4 percent this year.

“Philippine banks have moved in lockstep with the economy. S&P believes these banks are in a comfortable phase in the credit cycle—corporate profitability looks strong, interest rates and borrowing costs are low, and the non-performing loan ratio is low at around 2 percent,” the credit ratings agency said.

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S&P also identified among the strengths of the banking sector the “broad-based” loan growth, which jumped 16.5 percent last year.

“We believe the banking sector in the Philippines can continue to clock 15-17 percent growth in 2017 and 2018. The conditions for sustained growth remain intact, in our view. Interest rates have stayed low by historical standards. Banks have abundant liquidity to lend. Credit penetration is moderately low, with private sector credit-to-GDP ratio of about 50 percent, and with room to rise,” it said.

S&P also noted the comprehensive tax reform package being discussed in Congress could lead to “higher disposable incomes and consumer spending”—keys to further engaging the banking sector.

It said there was also a need to bolster the consumer loans segment, where it is considerably weak at the moment.

“The high branching costs to reach customers in this large archipelago is a hindrance. Banks are also justifiably cautious, given the lack of comprehensive consumer data and the high reported consumer non-performing loans,” S&P said. —BEN O. DE VERA

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TAGS: banking sector, Debt watcher, economic growth, S&P Global Ratings
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