Fitch sees stable banking sector despite rate hikes

MANILA, Philippines — The performance of the Philippine banking sector is expected to remain fairly steady despite some asset-quality pressure from higher domestic inflation and interest rates, Fitch Ratings said.

The debt watcher said credit costs would rise only moderately in 2019 after the tightening cycle undertaken by the Bangko Sentral ng Pilipinas (BSP) in 2018 wherein interest rates were raised by 175 basis points.

Fitch added the government’s massive infrastructure spending under the Build Build Build program would boost the country’s gross domestic product (GDP) and credit expansion.

“Resilient domestic demand and the authorities’ ongoing infrastructure program should sustain GDP and credit growth, and we expect credit costs to rise only modestly in 2019,” it said.

The central bank’s Monetary Board kept benchmark rates steady last Dec. 13 after lifting rates by 175 basis points in five straight rate-setting meetings since May to rein in inflationary pressures.

Inflation averaged 5.2 percent in the first 11 months of the year despite easing to a four-month low of six percent in November from a near-decade high of 6.7 percent in October.

The consumer price index (CPI) remained above the BSP’s two to four percent target.

For December, the central bank sees a sustained slowdown in inflation to a range of 5.2 to six percent.

The BSP expects inflation to average 5.2 percent instead of 5.3 percent in 2018, 3.2 percent instead of 3.5 percent in 2019, and three percent instead of 3.3 percent in 2020.

The international credit rating agency said the rating profiles of banks should remain steady, backed by satisfactory risk controls, adequate loss-absorption buffers, and generally stable funding and liquidity profiles.

“However, an unexpectedly steep and prolonged slowdown in activity would pose greater risks – especially in real estate, where many large conglomerates are exposed,” Fitch said.

Latest data from the BSP showed bank lending picked up to 18.4 percent in October from 17.4 percent in September despite the slower uptake of loans by households after a series of interest rate increases.

Loans disbursed by the banking sector amounted to P7.77 trillion in end-October from P6.57 trillion in end-October last year. Credit released for production activities increased at a brisker pace at 18.7 percent to P7.14 trillion from P6.01 trillion and accounted for 88.7 percent of the total loans disbursements in end-October.

The increase in loans for household consumption slowed significantly to 14.6 percent in October from 18.2 percent in September as releases reached P635.82 billion from a year-ago level of P554.78 billion.