S&P warns PH of risks from bad consumer loans

While the outlook for the domestic banking sector remains stable amid strong economic growth and declining total bad loans, debt watcher S&P flagged risks from increasing consumer loans.

In a webcast Tuesday, S&P financial services ratings director Ivan Tan also said the change in administration by midyear had no impact on the banks, although they expected the incoming Rodrigo Duterte-led government to continue the economic policies of President Aquino.

Tan said Duterte had unveiled “bold” economic plans but how these would be executed and implemented remained to be seen.

S&P said it expected the Philippines’ gross domestic product (GDP) to grow by 6 percent this year and 6.3 percent next year, making it the fastest-growing economy in Southeast Asia over the next 12 month, Tan noted.

Strong consumer demand, supported by robust remittances from Filipinos overseas, a growing business process outsourcing (BPO) sector as well as a large, young, educated labor force, would drive growth, he said.

The banking sector also remained healthy with stable liquidity, sound funding, ample capitalization as well as lower system-wide nonperforming loans (NPLs), which declined to 2.15 percent of the total portfolio in end-2015 from 2.4 percent a year ago, Tan said.

The Philippines was also bucking a trend in Asean where countries like Indonesia, Singapore and Thailand have been posting higher NPLs, he added.

However, Tan noted that the share of bad consumer loans have been on the rise, almost double the total NPLs as well as higher than those in neighboring countries.

“Unemployment and underemployment in the Philippines remain high. Despite high economic growth, the wealth gap is still uneven. Consumer repayment has not improved over the last few years,” he explained.

While consumer lending accounted for only 18 percent of the total loan portfolio, Tan said risks from bad consumer loans might not be a big concern at present but was seen as growing concern moving forward.