S&P warns of risks as PH banks hike lending

Debt watcher Standard and Poor’s (S&P) on Wednesday warned of risks resulting from banks’ ballooning consumer loans alongside increasing bad loans.

“Philippine banks’ pursuit of consumer loans could result in higher credit costs, given the inherently higher risk in this segment in a growing economy. The ratio of non-performing consumer loans to total consumer loans has consistently been double that of total NPLs [non-performing loans] to total loans, although both the ratios have been improving,” S&P Global Ratings said in a report titled “Asean Banks Can Withstand Asset-Quality Pain In 2016.”

The Bangko Sentral ng Pilipinas reported last week the banking industry’s loans for consumer purchases of motor vehicles and real estate as well as credit card use jumped 17.5 percent to P1.061 trillion in 2015, breaching the P1-trillion mark for the first time.

S&P said it does not help the Philippines “lacks a comprehensive credit bureau, has a weak payment culture, low income levels, and heightening consumer asset-quality risks.”

S&P nonetheless noted the Philippine banking sector’s overall NPL ratio dropped to 2.2 percent at end-2015 from 2.4 percent a year ago. Its peers, for comparison, are seeing their NPLs rising.

The debt watcher also expressed optimism over the role the newly formed Credit Information Corp. (CIC) would play. “The establishment of the government-led CIC and completion of substantial data collection by early 2017 would likely improve transparency and availability of credit in the consumer loans segment.”

For this year, S&P expects loan growth to slow to 8-12 percent from 13.7 percent last year.

“While [the 2016 forecast] is high compared with regional standards, it is a sharp adjustment from the 19-percent growth in 2014,” during which the government capped the value of real estate collateral to cool the property sector, especially commercial real estate, S&P noted.

“Loan growth, particularly to the corporate sector, would likely keep moderating as well unless public infrastructure and development projects kick in under the government’s public-private partnership scheme. We expect net interest margins of Philippine banks to strengthen as the proportion of higher-yielding consumer loans rises. However, the increase was from a low base, and the impact on margins would likely be gradual,” the debt watcher said.