BMI: PH loan growth to improve this year

THE country’s loan growth is expected to strengthen this year on the back of better economic conditions, a Fitch Group unit said.

BMI Country Risk & Industry Research expects loan growth to almost double to 10.0 percent from a previous estimate of 5.7 percent.

“Better macroeconomic conditions and lower interest rates in the second half of 2024 bode well for the credit environment,” BMI said in a report on Thursday.

“We also see limited risks to financial stability as the Philippine banking system is underpinned by a strong balance sheet and robust capital buffers,” it added.

The Fitch Group unit said the easing of monetary policy would provide some relief as borrowing costs decline.

It believes that the Bangko Sentral ng Pilipinas (BSP) is done hiking interest rates as inflationary pressures have already cooled.

The BSP’s Monetary Board kept key interest rates unchanged during its last meeting in December. It will reconvene on February 15, during which inflation data for January will be available.

The BSP’s benchmark rate currently stands at 6.5 percent following rate hikes totaling 450 basis points since May 2022.

BMI said that receding price pressures had reduced the need for fresh hikes to anchor inflation expectations.

It forecast that inflation would average 3.9 percent this year and that it would be a diminishing concern in the coming months.

With the possibility for cuts to materialize later in the year, BMI expects household loans to remain robust this year.

Meanwhile, BMI said the robustness of bank assets may encounter hurdles due to elevated interest rates yet it anticipates the impact not to be overly severe.

“Tight monetary policy will put pressure on borrowers’ ability to repay loans,” BMI said, noting that non-performing loans (NPLs) recorded a downtick at 3.41 percent in November from 3.43 percent in the previous month.

Despite the drop, BMI said the rate was still relatively high at 101.47 percent as of November last year.

“However, during the same period, there was also a decline in the NPL coverage ratio, suggesting that banks might be using their buffers to manage the negative impact on asset quality.”

BMI stressed that risks to financial stability were minimal as the Philippine banking system is supported by strong capital buffers.

“Elevated interest rates are expected to enhance net interest margins, as historical data shows a positive relationship between the two,” it said.