Philippine banks have maintained a strong asset quality, despite the rising interest rates, due to their sufficient liquidity buffers, according to Fitch Ratings.
The credit rating agency predicts that the country’s banks will continue to have manageable asset quality, despite a slight increase in asset-quality risks resulting from higher interest rates and the rising cost of living.
However, credit growth may decline to single digits this year, Fitch Ratings said.
The BSP raised the policy rate by 400 basis points to six percent last February. Despite the increase, Fitch believes the higher rates will not significantly affect the banks’ asset quality.
Fitch predicts that credit growth will be lower this year due to high inflation and interest rates. System loan growth will ease to 7 percent to 9 percent in 2023 and 2024 compared to 11 percent by end-2022.
The credit rating agency expects the non-performing loan (NPL) ratio to stabilize around 3.5 percent by end this year based on the adequate financial buffers of large corporate borrowers and a supportive economy.
Fitch also predicts that the economy will grow by 5.5 percent this year, which is below the government’s target of 6 to 7 percent.
It also mentioned that a “protracted economic slowdown” could cause “lumpy impairments for many of the banks given their high single borrowers’ concentration.” However, the agency does not see this as a likely scenario.
Fitch noted that large corporate borrowers are in a strong position to weather higher financing costs, while micro, small and medium enterprises (MSMEs) and consumer loans are more vulnerable.
Nevertheless, Fitch expects the job market to remain resilient in the near term, which should keep any consumer-loan impairments manageable.
Inflation is currently elevated at 8.7 percent, but Fitch predicts that the unemployment rate of 4.5 percent in the fourth quarter of 2022 should help keep any consumer-loan impairments in check.
