Despite series of BSP rate hikes
MANILA, Philippines — Philippine banks are expected to continue booking double-digit credit growth amid the series of tightening measures adopted by the Bangko Sentral ng Pilipinas (BSP) to rein in inflationary pressures, S&P Global Ratings said.
S&P credit analyst Nikita Anand said bank lending in the Philippines would continue to post double-digit growth although at a slower pace from a strong growth of between 17 and 18 percent over the past few years.
“We do expect credit growth to tone down due to the rapid rise in interest rates so far. The 17 to 18 percent growth has been retracting over the last few years. It should still be a double-digit growth but it should come down from that level to reflect the lower top line growth,” Anand said.
Latest data from the BSP showed bank lendings grew 17.2 percent to P7.04 trillion as of end September this year from P6 trillion in end September last year.
Likewise, revenues of universal and commercial banks in the Philippines went up nine percent to P116.1 billion in the first nine months of the year from P106.26 billion due to higher interest rate earnings.
The BSP’s Monetary Board has raised interest rates by 175 basis points in five consecutive rate-setting meetings since May this year to curb rising inflationary pressures.
Inflation averaged 5.1 percent in the first 10 months of the year, exceeding the central bank’s two to four percent target. The growth in the consumer price index steadied at a near-decade high of 6.7 percent in October.
However, Anand said the Philippine economy could withstand the series of tightening adopted by the central bank because interest rates are rising from low levels for a long period of time, while the debt level of both public and private sectors are at extremely low levels.
On the other hand, Ivan Tan, director for financial institution ratings at S&P, said banks in Southeast Asia are expected to continue to book moderate loans growth amid external uncertainties led by the full blown trade war between the US and China.
“You can see a very clear trajectory that loans growth has decelerated in ASEAN,” Tan said.
After growing at a double-digit rate of about 15 percent in 2012, he pointed out loans growth moderated to a range of five to eight percent.
“You are looking at a mid single-digit loans growth for majority of the banking system here. So far our forecast is for continued moderate loans growth going into next year,” Tan added.
Aside from the trade tension between the US and China, he also cited strong capital outflows in ASEAN countries.
Due to weaker loans growth, Tan explained ASEAN banks would book lower earnings.
“The reason why I am pointing this out is because there is a very significant revenue implication from a slowdown in loans growth. The bulk or more than two thirds of revenue of ASEAN banks comes from interest income on their loans,” he said.
Slower loans growth typically leads to slower interest revenue growth as well.
“Rising interest rates are a bright spot for banks,” he said.
However, he said the deceleration in loans growth, higher interest rates, and disruption from financial technology (fintech) in the payment space could drag down earnings of ASEAN banks.
Tan warned faster increase in interest rates in the region could affect profitability of banks because of higher delinquency rates.