Fitch turns more bullish on PH banks

Fitch Ratings has turned more bullish on the performance of Philippine banks this year, as net interest margins should remain healthy with rates expected to stay higher for longer.

The global credit watcher said in a statement on Tuesday that it has revised its outlook on the Philippines’ banking sector to “improving” from “neutral,” with the sustained growth in consumer lending and the rollout of key infrastructure projects also projected to boost the banks’ earnings this year.

Fitch Ratings noted the robust growth in the loan and business volume as system loans increased by 10 percent year-on year as of end-April, from the 8 percent in December last year.

This was due to sustained credit card lending, which grew by 29 percent, plus higher loan disbursements to the construction (15 percent) and transportation sectors (22 percent).

“The growth and the robust economic outlook led us to raise our 2024 credit growth projection to 11.5 percent from our earlier forecast of 9.8 percent,” it said.

Outstanding loans by universal and commercial banks, net of placements with the BSP, grew by 9.6 percent year-on-year to P11.9 trillion in April, faster than the 9.4-percent growth in March.

Fast growth

At the same time, Fitch said in a statement that even with interest rates staying high for some time, it should have a “manageable impact” on the banking sector’s asset quality given the “resilient” economy.

“The rising share of riskier consumer lending points to inherently higher credit risks on the banks’ loan portfolio, but the healthy economy and job market prospects should help to limit the increase in impairment on the banks’ consumer loan books in the near term,” it said.

“Most large corporates also continue to hold comfortable financial buffers over projected debt-servicing needs,” it added.

Fitch estimates that the country’s gross domestic product will grow by 5.8 percent in 2024, among the fastest in Southeast Asia.

This despite the policy rate staying at a 17-year high of 6.5 percent to combat inflation. And with risks of price increases still on the horizon, the rate is expected to stay there for some time.

BSP Governor Eli Remolona Jr. did say, however, that it was possible for the Monetary Board to start cutting rates by 25 basis points as early as August, likely ahead of the US Federal Reserve.