According to the latest report from Fitch Ratings, a leading provider of credit ratings, commentary, and research, the asset-quality risks of Philippine banks are now increasing due to the rising cost of living and higher interest rates. It also forecasts that the non-performing loan (NPL) ratio sector will remain steady at around 3.5% by the end of 2023 (2022: 3.3%).
In its report entitled, “Philippine Banks Asset Quality Dashboard: March 2023,” Fitch stated that large corporate borrowers, which currently dominate the loan portfolio of the country’s banking sector, are in a relatively strong position to weather higher financing costs.
“A protracted economic slowdown could result in lumpy impairments for many of the banks, given their high single borrowers’ concentration, but this is not our base case,” it said.
Fitch Ratings adds that any deterioration in credit quality would likely be manageable due to the robustly growing economy and adequate financial buffers of the main borrowers.
“The buffer for earnings is more than sufficient and can easily cover the expected increase in interest expenses for a vast majority of debt among listed corporates,” the global rating firm said.
Small businesses and consumer loans are more vulnerable, given their thinner buffers, but any weakening is likely also going to be manageable as we expect the job market to remain resilient in the near term.
Fitch is also predicting that the country’s Gross Domestic Product (GDP) will grow by 5.5% in 2023. More information about this report is available at www.fitchratings.com.
PH banks as a source of strength for the economy
Felipe M. Medalla, governor of the Bangko Sentral ng Pilipinas (BSP), has earlier said in a press statement that the country’s banking system remains solid, stable and capable of supporting the country’s economic growth.
“They have adequate capital buffers, sufficient liquidity, minimal exposure to bad debts as well as growing assets, deposits, and loans. A sound regulatory environment — a result of decades of reforms – supports the country’s banking system,” Medalla said.
The BSP chief also reiterated his belief that Philippine banks will continue to be a source of strength for the economy.
Latest data shows that assets of the banking sector grew by 10 per cent from P20.68 trillion recorded as of end-October in 2021 to P22.74 trillion in 2022.
The profit of banks operating in the Philippines also jumped by 45 per cent to P244.87 billion between January to September compared to last year’s profit for the same period amounting to P169.09 billion.