MANILA, Philippines — Philippine banks’ credit profiles are expected to remain “broadly steady” amid rising interest rates, global debt watcher Fitch Ratings said.
In a report released Wednesday, Fitch said Philippine lenders would remain supported by “resilient asset quality, acceptable profitability, stable funding and adequate capitalisation.”
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“Receding global liquidity, a wider current account deficit and broader emerging-market jitters have placed pressure on the Philippine currency and interest rates in recent months,” the credit rater said.
“Interest rates are rising as domestic liquidity tightens, pointing to a less favourable environment for Philippine borrowers overall,” it added.
The Bangko Sentral ng Pilipinas has raised its policy rates by a cumulative 100 basis points from May to August in a bid to fight inflation and stem peso depreciation. Monetary authorities have also vowed to undertake “strong action” in the upcoming rate-setting meeting on Thursday.
The rate hikes brought the benchmark overnight borrowing rate to 4 percent from 3 percent originally. Banks typically use the BSP's benchmark rate as the basis for charging their loans to consumers.
If any, the effect of the BSP's rate increases was expected to deter bank borrowing due to higher rates. Small consumers like households are most likely to feel the first effect.
Data from the central bank show consumer loans grew slower in July, a sign interest rate hikes by the BSP are slowly increasing bank lending rates.
READ: BSP rate hikes start to temper household loan appetite
“We expect higher interest rates to temper loan growth, particularly as recent higher inflation may crimp consumer demand. Any moderation is likely to be modest, however, as ongoing infrastructure spend and broadening growth beyond Manila should continue to drive economic activity,” Fitch Ratings said.
“We expect lending rates to remain manageable for most borrowers even with the latest policy rate hikes. Further large rate increases could have a greater impact on asset quality, but we do not expect excessive moves in the near term,” it added. — Ian Nicolas Cigaral