Narrowing margins to hit PH banks’ profitability

MANILA  -Bank lending across emerging markets in Southeast Asia is expected to recover in 2024 in tune with faster economic growth in the region next year, and profitability will likely be steady amid interest rates staying high for longer, according to Fitch Ratings.

The global credit rating agency said in a report that accelerating gross domestic growth rate would fuel “a modest recovery in loan growth—especially in the Philippines, Thailand and Vietnam.”

Also, Fitch Ratings said high policy rates will support banks’ net interest margin (NIM)—which measures a bank’s earnings on its lending compared to its expenses on deposits—and “help sustain steady profitability” for most banks in the regions.

However, Philippine banks may miss out on this as their profitability is likely to decline from a record high, as the credit watchdog sees the Bangko Sentral ng Pilipinas (BSP) policy rates reverting to lower levels in the latter half of 2024.

According to the BSP, the Philippine financial system continued to perform strongly in the first half of 2023, as banks showed sustained resilience and stability with a strong balance sheet, profitable operations, sufficient capital and liquidity buffers, and ample provision for probable losses.

READ: PH financial system sound and stable, says Bangko Sentral

From January to June this year, Philippine bank’s assets grew by 9.1 percent to P23.3 trillion, of which more than half or P12.3 trillion were channeled to lending.

A 7.8-percent increase in deposits drove the growth in assets, but the BSP said this pace was still slower than the prepandemic pace of 11 percent.

The central bank said Philippine banks remain well capitalized and highly liquid, with a capital adequacy ratio and key liquidity ratios exceeding the BSP regulatory and international standards.

Further, as of the end of June, total loans grew by 8.8 percent P12.7 trillion, slightly faster than the 8.7 growth seen in the same period last year.

Lending increased on the back of a 26.3-percent surge in loans granted to household loans, representing P322.7 billion in new borrowings.

However, bank lending slowed for the sixth straight month in September.