Fitch: Rate hikes to boost Philippine banks' profitability
MANILA, Philippines — The second half of the year is widely expected to prove profitable for banks following the Bangko Sentral ng Pilipinas’ consecutive rate hikes, according to Fitch Ratings.
In an emailed commentary on Thursday, the credit ratings agency noted that Philippine banks have yet to price in the interest rate hikes. The BSP kicked off its monetary policy normalization in May, even injecting an increase in an off-cycle policy meeting to cool down inflation.
“Interest rate hikes since May 2022 have normalised the reverse repo rate to a pre-pandemic level of 3.75%. Banks’ reported margins have yet to reflect most of these increases, which point to additional profitability tailwinds in 2H22,” the commentary read.
Changes in the benchmark rate reflect within the economy six months after the BSP’s adjustment.
Following the latest 50-basis point hike in early August, the interest rates on the overnight deposit and lending facilities climbed to 3.25% and 4.25%, respectively. That said, the BSP has pumped interest rates by a total of 175 basis points since the start of the year.
The BSP’s key policy rate is used by banks and financial institutions as basis when setting interest rates on loans.
“Further improvement, nevertheless, may be tempered by rising loan competition, especially within the corporate sector that remains the dominant segment of the bank's loan portfolio, as the banks’ risk appetite returns,” the ratings agency added.
However, Fitch projected loan growth would otherwise slow down in the second half due to red-hot inflation and a higher interest rate.
“Improving profitability is positive for the large banks' standalone credit profiles, but does not strengthen their support-driven Issuer Default Ratings, which remain sensitive to changes in the sovereign’s ‘BBB’ rating and Negative Outlook,” Fitch Ratings said.
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