Philippine infrastructure campaign lifts dismal lending prospects

Loan growth is poised to settle in mid-teens by year end.

Although loan growth is expected to be hit by the rising interest rate environment in lockstep with the Fed, Philippine banks remain set for positive lending prospects in the latter half of the year on the back of sustained economic activity. 

“Any moderation is likely to be modest, however, as ongoing infrastructure spend and broadening growth beyond Manila should continue to drive economic activity,” rating agency Fitch Ratings said in a report.

Loan growth is expected to settle in the mid-teens for the full year, added Fitch.

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“Interest rates are rising as domestic liquidity tightens, pointing to a less favorable environment for Philippine borrowers overall. Against this, we expect bank credit profiles to remain broadly steady — supported by resilient asset quality, acceptable profitability, stable funding and adequate capitalisation,” the firm explained. 

Philippine banking profitability ended lower in the first semester as weak capital markets and high cost growth weighed in on half-year performance. However, investments in information technology are poised to push cost-to-income ratios over the coming months.

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Smaller players like Rizal Commercial Banking Corp., Security Bank Corp., China Banking Corp are more susceptible to deposit competition due to higher loan-to-deposit ratios, lower current and savings account (CASA) ratios and generally weaker deposit franchise, noted Fitch, adding that the three largest banks, BDO Unibank, Metropolitan Bank & Trust Co. and Bank of the Philippine Islands, are set to maintain their positive momentum due to their healthy CASA ratios of between 61-75%.