Bloated corporate loan books drag down Philippine banks

The retail loan segment offers a way to diversify their lending.

Philippine banks can cash in on further opportunities for growth by diversifying their lending books away from corporate loans and into retail loan segments, credit rating agency S&P said in a webcast. 

“The main issue right now is that there’s a lot of concentration [in the corporate segment.] They have a lush conglomerate-focused loan books,” Ivan Tan, S&P director for financial institution ratings said in a video. 

Loan growth in the Philippines surged 19.4% in May amidst strong lending to key production sectors including wholesale and retail trade, repair of motor vehicles, real estate activities and financial and insurance activities.

Tan added that the proportion of Philippine banks’ retail lending as opposed to their total lending portfolio is still ‘extremely small’ but that banks are making the necessary effort to respond to this problem.

“The banks have recognised this for the last three to four years. They have been trying to diversify their retail and consumer loans as they ramp up their branch network,” Mr. Tan said.

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Philippine lenders also stand to benefit from enhanced underwriting practices by a consumer credit bureau.

“We definitely see a lot of opportunities in terms of rebalancing of loan portfolio from chunky corporate loans to a more balanced, retail-focused loan book,” Tan added.