Bank lending growth seen to average 14% until 2019

BMI Research expects credit growth to normalize in the next two years as the rising interest rates over the coming quarters would soften the performance of the banking industry.

The research arm of Fitch Group expects bank loans to expand by an average of 14 percent in 2018 and 2019.

BMI said the expansion of bank assets slowed down to 12.4 percent in November, while that of bank loans to 16 percent after reaching multiyear highs in July last year.

“This was in line with our view for loan growth to nor- malize from a high base, and we expect this trend to continue as interest rates are likely to rise over the coming quarters as the BSP tightens its monetary policy stance over the course of 2018,” it said.

It said the average 14 percent loan growth per annum over the next two years is still a fairly strong figure and would be supported by a healthy risk appetite.

The robust domestic demand and benign inflation environment have allowed the central bank to keep an accommodative policy stance over the past three years to support the expanding economy. It last raised interest rates by 25 basis points in September 2014.

“We forecast the economy to grow at above six percent over the medium term, which is a solid figure by any measure. Thanks to favorable demographics trends, strong public investment drive which will help address the acute infrastructure deficit, and deepening economic cooperation with China and Japan, which should be supportive of trade and investment,” BMI said.

It said the strong economic sentiment and low interest rate environment since 2010 lead to heavy lending by commercial and universal banks to the real estate sector.

Data showed the outstanding loan exposure to the real estate sector doubled to P1.71 trillion in end-September last year from P866.6 billion in March 2014.

Meanwhile, according to a report by Fitch Ratings, buoyant projections for property demand have also resulted in excess supply in some subsegments, while an increasing number of corporates and conglomerates have ventured into property development.

“This raises contagion risk in the event of a real estate downturn, and the concentrated loan portfolios could exacerbate the situation,” it said.