Higher interest rates—monetary authorities’ response to last year’s elevated inflation—may increase bad loans in the Philippines, UK-based Oxford Economics said.
“Rising bad bank loans are a risk in several emerging markets (EM) where interest rates have risen steeply in the past year, such as Pakistan, Turkey, Argentina, the Philippines and Indonesia,” Oxford Economics lead economist Adam Slater said in a Feb. 7 report titled “EM debt: the bubble may already have burst.”
As inflation, or the rate of increase in prices of basic commodities, picked up to its fastest pace in a decade last year, the Bangko Sentral ng Pilipinas’ Monetary Board jacked up key interest rates by a total of 175 basis points for the year.
For the Philippines and the four other countries mentioned by the report, Oxford Economics warned that the risk of rising nonperforming loans (NPLs) were “acute.”
In the case of the Philippines, Oxford Economics said gross NPLs as a share of gross loans rose to 2.7 percent to date from 2.5 percent in the first quarter of 2016.
Oxford Economics also noted that a building up of debt had been happening in China, the Philippines, Chile, Saudi Arabia and Turkey during the past five years.
The Philippines, for instance, has been ramping up borrowings to finance big-ticket infrastructure projects under the Duterte administration’s ambitious “Build, Build, Build” program.
The national government’s borrowings were programmed to exceed the P1-trillion mark this year.