S&P sees credit growth at 10 to 12% this year

MANILA, Philippines — Philippine banks may enjoy a faster credit growth of between 10 and 12 percent this year amid the easing cycle by the Bangko Sentral ng Pilipinas (BSP) as well as the stronger demand for loans to finance the country’s massive infrastructure build up, according to S&P Global Ratings.

Ivan Tan, director for financial institutions ratings at S&P, said asset quality is holding up in the Philippines even as loans and economic growth moderates.

Philippine economic growth averaged 5.8 percent from January to September last year, lower than the revised target of six percent to 6.5 percent due to soft global markets amid the US-China trade war, the series of rate hikes by the BSP’s Monetary Board, and the impact of the delayed implementation of the 2019 national budget.

“In the Philippines, We expect credit growth to be 10 percent to 12 percent in 2020, lower than 15 percent in 2018, but still solid as policy cuts and approval of key infrastructure supports loan demand,” Tan said.

Latest data from the central bank showed big banks in the country recorded a double-digit growth of 10.1 percent in credit growth to P8.95 trillion as of end-November last year from a year ago level of P8.13 trillion.

Loans extended to production activities went up by 8.1 percent to P7.8 trillion from P7.21 trillion, while disbursements for household consumption jumped by 26.6 percent to P810.41 billion from P646.6 billion.

The benign inflation environment and slower-than expected GDP growth allowed the central bank to slash interest rates by 75 basis points, partially unwinding the tightening cycle that saw benchmark rates jump by 175 basis points in 2018.

The BSP also lowered the reserve requirement ratio for big and mid-sized banks by 400 basis points and for small banks by 200 basis points, freeing up about P450 billion in additional funds into the financial system.

BSP Governor Benjamin Diokno has signaled the resumption of the central bank’s easing cycle via a cumulative rate cut of at least 50 basis points.

The Duterte administration has earmarked P8 trillion to P9 trillion until 2022 to finance crucial infrastructure projects under the Build Build Build program.

Tan said soured loans or non-performing loans (NPLs) of banks operating in the country could rise moderately. “NPLs may continue to rise moderately, but Philippine banks have good coverage ratios and capital buffers,” Tan said.