Fitch: PH economy to grow by 6.0-6.5%
PHILIPPINE economic growth will likely improve this year and the next and remain one of the fastest in the region, Fitch Ratings said.
“We expect GDP (gross domestic product) to pick up to 6.0 percent-6.5 percent in 2024 and 2025, reflecting lower base effects and our view that policy rates have peaked,” the debt watcher said in a review of banks in the country.
“The forecast puts the Philippines among the fastest expanding economies in the region, with growth rates significantly outpacing ‘BBB’ rated sovereigns’ median of about 2.9 percent-3.2 percent,” it added.
The government has just revised the GDP growth targets for 2024 and 2025 to 6.0-7.0 percent and 6.5-7.5 percent, respectively, from 6.5-7.5 percent and 6.5-8.0 percent, given trade and geopolitical headwinds.
Economic growth slowed to 5.6 percent last year, missing the 6.0to 7.0-percent target, but was still among the highest in the region.
High interest rates — the Bangko Sentral ng Pilipinas’ (BSP) benchmark rate currently stands at a near 17-year high of 6.5 percent following 450 basis points of increases to bring down surging inflation — were a factor in the GDP slowdown.
Inflation has since returned to target and Fitch said this had opened up space for the BSP to begin cutting rates later this year.
“We project the reverse repurchase rate to decline by about 100bp in 2024, backloaded in 2H24 (the second half of 2024), and a further 75bp in 2025,” it said.
“The lower interest rate environment and strong economic growth should continue to underpin the banking sector’s growth prospects over the next 12-24 months, despite moderate compression in margins,” the debt watcher added.
Rated Philippine banks, Fitch said, are expected to post lower net interest margins — the difference between interest earned and that paid out — due to lower interest rates, but this should be offset by higher loan growth and business volumes.
The credit profiles of the five rated Philippine banks — privatelyowned BDO Unibank Inc., Bank of the Philippine Islands (BPI), and Metropolitan Bank & Trust Co. (Metrobank) and state-owned Land Bank of the Philippines (LandBank) and Development Bank of the Philippines (DBP) — were said to be steady.
“The three privately owned banks have better standalone credit
profiles than their state-owned counterparts, due largely to their established local franchises and better underwriting standards,” Fitch noted.
“This has allowed them to deliver asset quality and financial performance that has consistently been above most domestic peers throughout economic cycles,” it added.
DBP’s viability rating (VR) was said to have been downgraded due to its contribution to the Maharlika Investment Fund (MIF), which would have led to the bank’s failing to meet capital requirements “if not for regulatory forbearance.
“LBP had also contributed to MIF, but the impact on its standalone profile is less pronounced, leading us to affirm its VR,” Fitch added.
Metrobank, BPI, and BDO’s longterm issuer default ratings (IDR) and VRs are all currently at “BBB-/ Stable” and “bb+”. The IDRs for LBP and DBP are both “BBB/Stable”, but the former has a higher VR of “bb” compared to the latter’s “bb-”.