Bank lending in PH seen staying on growth path

BANK lending growth in the Philippines will remain among the fastest in the region given the strong demand from both businesses and households, even as financing becomes more expensive in the coming months.

Debt watcher Moody’s Investor Service, which has a “stable” outlook for Philippine banks, said the domestic economy’s bright prospects would drive loan demand.

“We expect the credit profiles of the Philippine banks to remain stable over the next 12 to 18 months, supported by steady domestic economic growth,” Moody’s vice president and senior analyst Simon Chen said in a report released this week.

The stable outlook for banks means credit ratings for these institutions will likely stay the same for the next year and a half. Last year, Moody’s had a “positive” outlook for local lenders, but most of these institutions have earned rating upgrades since then.

Although credit expansion is moderating after government-implemented measures to curb excessive risk-taking, Moody’s said outstanding bank loans would continue to grow by 14 to 16 percent over the next 12 to 18 months. This would be slower than the 19-percent growth recorded in 2014.

Increases in property prices remain in line with economic growth, and in Moody’s view, the Philippines can support a relatively fast pace of loan growth in under-penetrated sectors without experiencing excessive asset risks.

The system-wide loan-to-deposit ratio was 63 percent as of September 2015, a level that is low by global and regional standards. Moody’s said funding and liquidity were a “strength” for the Philippine banking system.

“Deposit growth has broadly kept pace with relatively fast loan growth owing to robust remittance inflows from overseas Filipinos and healthy corporate earnings, including business process outsourcing receipts,” the rating firm said.

Given the ample deposits, Philippine banks’ reliance on market funding is low, and they are able to deploy their liquidity by holding cash and government securities that serve as liquid assets.

Moody’s said it expects credit costs to rise slightly as banks increase the proportion of lending to high-yielding segments such as the consumer sector, but leading indicators of asset quality are stable.

At the end of July, banks’ non-performing loans (NPL) reached the equivalent of 1.9 percent of the industry’s total loan portfolio. This was slightly higher than June’s NPL ratio of 1.84 percent. Major banks’ NPL ratio, which is the main measure of asset quality, has remained below 2 percent since November 2014.

The increasing proportion of loans to under-serviced segments, which implies a decreasing proportion of total loans to the competitive large corporate segment, will also lead to a widening in net interest margins, supporting profitability.