Fitch: PH infra boom to spur growth in banks’ loan portfolios

Loan growth in the Philippine banking system next year would jump in the double-digits, supported by the government’s plan to ramp up spending for its infrastructure goals, debt watcher Fitch Ratings said Thursday.

“The robust economy will continue to drive brisk loan growth, which we forecast in the mid- to high-teens for 2017. We foresee the bulk of this channeled into infrastructure, real estate and other business investment activities, while strong consumer demand will continue to spur household borrowing,” Fitch said.

The debt watcher kept Philippine banks’ largely stable outlooks for next year in its report titled “2017 Outlook: Asia-Pacific Banks.”

“The ratings on most Philippine banks are on stable outlook, reflecting our view that most banks’ ratings are unlikely to be upgraded again in the near term following the upgrades of five banks in 2016. Exceptions are the two support-driven government banks [Development Bank of the Philippines and Land Bank of the Philippines] where the positive outlooks mirror the outlook on the sovereign ratings. The upgrades in 2016 were driven by improved overall credit profiles backed by a robust economy and steadily strengthening regulatory and risk frameworks,” Fitch said.

Fitch added it expected strong domestic demand to be sustained partly by the Duterte administration’s plans to accelerate spending on hard infrastructure in order to boost economic growth, which is seen expanding by 6.6 percent next year.

Fitch said it expects the Bangko Sentral ng Pilipinas “to stay alert to potential credit and asset bubbles as credit excesses will remain a risk in this environment.”

Fitch also sees the Philippine banking system’s asset quality and profitability to be steady next year.

“Profit growth will be underpinned mainly by balance-sheet expansion. The gradual shift in loan mix towards higher-yielding consumer and project finance should help offset competitive pressure on margins, while asset quality should remain broadly stable amid supportive macroeconomic conditions,” it said.

The banking system’s funding and liquidity levels would also remain in comfortable levels, Fitch added.

“System liquidity remains healthy, as evident in the low aggregate loan/deposit ratio of 71 percent (at end-September 2016) and the significant pool of funds deposited with the central bank. Liquidity conditions should remain comfortable in 2017 as existing liquidity buffers, credit creation and foreign remittance inflows help to cushion against debt and currency market uncertainty. We expect banks to continue to prize stable deposits and term funding ahead of Basel III liquidity coverage ratio requirements that will be phased in over 2018-2019.”