Rate hikes to ease credit growth in Philippines — Moody’s

MANILA, Philippines — Moody’s Investors Service said credit growth may slowdown to single digit level after a series of rate hikes by the Bangko Sentral ng Pilipinas (BSP).

Simon Chen, vice president and senior analyst at Moody’s, said Moody’s sees a loan growth of between mid to high single digit on the back of the country’s robust macroeconomic conditions.

“We are expecting a loan growth of between mid to high single digit growth which is quite a good number for the Philippine banks,” he said.

Data from the BSP showed bank lending grew 18.4 percent to P6.95 trillion in 2017 from P5.87 trillion in 2016 due to higher loan disbursements for production activities.

Chen told reporters the country’s banking sector may benefit from rising interest rates through higher profits with the expected shift to high yielding retail from corporate loans.

“I think what has changed from last year is that loan growth continues to be strong. Secondly, we do think the banks will benefit from rising interest rates environment,” Chen said.

The BSP has so far raised interest rates twice this year with a cumulative increase of 50 basis points to curb rising inflationary pressures from higher global oil prices as well as the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

The central bank first lifted rates for the first time in more than three years with a 25 basis point hike last May 10 and was followed by another 25 basis points last June 20.

Inflation inched up to a fresh five-year high of 4.6 percent in May from 4.5 percent in April, bringing the average in the first five months to 4.1 percent exceeding the two to four percent target set by the BSP.

“We do think that the rate increases will be gradual and modest so the adjustment to higher interest rates within the households and corporates the adjustments will be very manageable,” Chen said.

Moody’s vice president and senior credit officer Christian de Guzman said the back-to-back rate hikes imposed by the BSP would provide stability in slowing the country’s credit growth.

“This is positive because we have been concerned about the rapid pace of credit growth over the past couple of years.  This kind of statistics has been used as evidence perhaps to support this idea of overheating. So a bit of deceleration in credit growth I think goes some ways in alleviating those financial stability concerns,” De Guzman said.