Philippine banks’ bad loans ratio to decline in 2023: S&P

But should interest rates rise sharply, banks may face more defaults.

The Philippine banking sector’s non-performing loans (NPL) ratio is expected to decline slightly to 3.2% by end 2023 as most pandemic-related weak loans have been recognized or restructured, according to the latest report released by S&P Global Ratings.

However, should interest rates rise sharply, more defaults from consumer and small to midsize enterprise segments may happen, warned Nikita Anand, primary credit analyst, S&P.

The sector’s NPL ratio is expected to come at 3.5% for the full year of 2022, lower than the 4% reported in end-2021.

Earnings are also expected to improve, with the sector’s return on average assets likely to increase to 1.3% to 1.4% in 2023. This is thanks to higher margins from policy rate hikes, Anand said.

However, higher interest rates could slow credit growth. S&P now forecasts a credit growth of 5% up to 7% in 2023. This is lower than the 7% to 9% in 2022.