Asset quality intact on prudent lending
PHILIPPINE BANKS remain prudent in handing out loans even as the market remains awash with cash, Fitch Ratings said, with little risks seen from rapid growth in both the corporate and retail segments.
“Too much liquidity is also a risk factor because the risk is that it is lent indiscriminately because you have to deploy it somewhere… [But] so far, there are few signs there has been wide-scale lending on an imprudent basis,” Elaine Koh, director for financial institutions at Fitch, said in a recent interview.
“It’s up to the banks where they see the lending opportunities. If there are not sufficient lending opportunities, then they will have to be deployed in liquid assets, investments in securities, where they might end up being placed under relatively low margins.”
Ms. Koh has said that the banking system will likely maintain its sound footing over the near term, with little risks of overheating as lenders remain cautious in handing out credit for both retail and corporate customers.
The Philippine financial market currently holds abundant money supply, which Ms. Koh said traces back to the central bank’s decision in 2013 to change the access to special deposit account that effectively unlocked a fresh stream of funding.
“Since then with the doubledigit credit growth, a lot of liquidity has been absorbed back into the system,” the analyst added.
Some P9.5 trillion has been circulating in the Philippine economy as of end April as it grew by 11.2% from a year ago, according to latest data from the Bangko Sentral ng Pilipinas (BSP).
Meanwhile, bank lending expanded by 19.2% in April to reach P6.219 trillion, with bulk of the credit channelled to productive sectors. Consumer loans rose faster at 24.3% on the back of higher debts incurred via credit cards, car loans, and salary-based borrowings.
In particular, lending to businesses remain sound as banks have been “very careful” especially with the single borrower’s limit ( SBL) imposed by the central bank, Ms. Koh added. The BSP imposed the SBL to cap a bank’s credit exposure to a single client to a maximum of 25% of a bank’s net worth, as a prudential measure.
There are also minimal risks on consumer lending, Ms. Koh said: “[ The retail segment] tends to have higher NPL (nonperforming loan) ratios, but on the other side the margins are also more attractive. You can make up for it, you have higher credit costs but you also earn a better margin.”
“Growth has also been quite high close to 20% range. What we see is that has to be supported by growth in incomes as well,” the Fitch analyst also noted.
Soured debts held by Philippine banks took a 2% share to total loans as of end March, improving from 2.24% a year ago, according to central bank data. The lenders are seen to be well-armed against these potential defaults, having set aside reserves worth P175.702 billion to cover P151.482 billion in total NPLs.