Banks’ 10-12% credit growth likely this year: S&P Global Ratings

Philippine banks will likely see higher total credit growth ranging from 10 to 12 percent this year due to moderate inflation, stable employment rates, and lower interest rates, credit analyst S&P Global Ratings says.

The double-digit forecast is an improvement from the 5 to 6 percent level recorded by the Bangko Sentral ng Pilipinas last year, the S&P report released Tuesday shows.

The global analyst says all the aforementioned factors will drive overall Philippine economic growth faster than its Asian neighbors at 6 percent this year and in 2025, compared to Indonesia’s 5 percent and Malaysia’s 4.5 percent.

For 2023, S&P estimates a 5.3 percent Philippine economic growth.

Economic growth

The Philippine Statistics Authority reported economic growth stood at 6 percent in the third quarter last year from 4.3 percent in the previous quarter.

“Higher economic growth, along with lower inflation and interest rates, will support credit demand. We believe policy rates could decrease in 2024 as inflation stays moderate,” S&P says.

On the side of retail loans, the credit analyst expects a stable growth of 15 to 16 percent.

BSP data shows auto loans jumped to 15.6 percent last year from 9 percent in 2022, while home loans and credit card lending remained flat.

BSP Governor Eli Remolona Jr. said the central bank might lower its policy rate within the year as it sees “no further upside risks” for inflation.

However, Remolona said the central bank is still hawkish as a stronger drought from El Niño is possible which could push up food prices.

Baseline inflation

The BSP set its baseline inflation at 4 to 4.2 percent for this year, following a disinflation to 3.9 percent in December from 6.1 percent in September last year.

Corporate loans could also increase with the projected economic growth backed by “stable” employment, S&P says.

S&P data shows such loans declined to 0.5 percent last year from 10 percent in 2022 as credit costs slightly fell to 0.5 percent. However, this was much lower than the 20 percent recorded during the pandemic.

“Non-performing loans or NPL in corporate loans and credit cards rose slightly reflecting tighter financing conditions,” S&P says.

Domestic banks’ risks manageable

However, S&P says the risks for domestic banks will remain manageable as they continue to better assess borrowers’ capacities and credit costs remain stable.

“Asset quality fared better than we expected in 2023 as pass through of higher policy rates was measured,” the credit analyst says. The BSP has raised its policy rate by 450 basis points to 6.5 percent.

Gross NPL ratio of Philippine banks might settle at a healthy 3.5 percent, while provisions for bad loans remain more than adequate or over 100 percent, S&P says.

It adds credit losses will likely be flattish at 0.5 to 0.7 percent of gross loans this year.