BMI: High household debt a risk to PH consumer outlook

A high level of household debt at a time when borrowing costs are expensive remains a risk to Philippine consumers, BMI Research said.

In a report sent to reporters on Wednesday, the unit of the Fitch Group said too much debt may not only constrain future borrowing capacity of many Filipino families but also impact current disposable income levels.

But despite the rise in household debt as stubbornly high inflation weighed on budgets, BMI said Filipino consumers are so far able to settle their liabilities, which have become costlier amid a high interest rate environment.

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“This is particularly true as debt servicing costs rise in response to increases in interest rates,” it said.

Data compiled by BMI showed that the share of household debt to gross domestic product stood at about 10.1 percent, which the Fitch unit deemed low.

While household debt levels have started to rise—with the share of consumer borrowings to banks’ total loan portfolio increasing by 2.7 percentage points year-on-year to 21 percent in the fourth quarter of 2023–BMI said the quality of loans was also improving as the share of past due household debt to total loans decreased to 5.8 percent.

BMI also said that credit cards are now performing better, with soured credit card loans accounting for 4 percent of banks’ entire loan portfolio in the final quarter of 2023, smaller than the pre-pandemic ratio of 4.2 percent.

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For that reason, BMI said it expects consumer spending, a major growth driver in the Philippines, to remain steady “under stable macroeconomics.” The Fitch unit projects household consumption to grow 6.4 percent in 2024, from 5.1 percent in 2023. In real terms, household spending is forecast to grow to P12.7 trillion (at 2010 prices).

”Spending will remain influenced by the elevated inflationary pressures seen over 2023 as well as currently high debt levels, along with related debt servicing costs,” BMI said.