S&P GLOBAL RATINGS expects Philippine banks to remain stable this year amid expectations of faster economic and loan growth.
“The outlook is one of stability at this point. The GDP (gross domestic product) forecast [for 2024] is 6%, which is fairly healthy and comparable with emerging markets,” S&P Global Ratings Director and Southeast Asia Lead Analyst Ivan Tan said in an online briefing on Wednesday.
This is faster than the 5.6% GDP growth posted last year.
Mr. Tan added that banks could see faster loan growth this year as the Bangko Sentral ng Pilipinas (BSP) is expected to slash benchmark interest rates.
“Our view for this year is the BSP will cut by 75 basis points (bps) and loan growth will pick up to 10-12%,” he said.
This is faster than its estimated 2023 loan growth of 6%, Mr. Tan said.
“The Philippines is typically capable of 10-12% loan growth, so 2023 loan growth was half of what it used to be. The obvious reason is that the policy rate is very high, so it’s very expensive for corporates to borrow and I think there was a reluctance,” Mr. Tan said.
The Monetary Board raised benchmark interest rates by 450 bps from May 2022 to October 2023, bringing the policy rate to a near 17-year high of 6.5%. It has since kept borrowing costs steady.
Loans to the real estate sector also remain stable compared with other countries in the region, Mr. Tan said.
The exposure of the Philippine banking industry to property loans is at about 20%, he said, with one third of this being home loans and the rest going to the commercial sector.
“We have some concerns because in commercial real estate, the vacancy rate is about 18%. It is fairly high,” he noted.
However, majority of the borrowers in this sector are rich, family-owned conglomerates with strong financial buffers, Mr. Tan said, which kept the commercial real estate sector’s nonperforming loan ratio of only 3%, similar to the system average.
“So, in spite of the high vacancy rates, they have been able to repay their loans,” he said. — A.M.C. Sy