Rate hikes boost net interest margins of banks

MANILA, Philippines — The series of rate hikes have started feeding through to the net interest margins (NIMs) of big banks in the Philippines, according to independent credit research provider CreditSights Inc.

In a report, CreditSights said the rate increases delivered by the Bangko Sentral ng Pilipinas (BSP) boosted the net interest income of banks through higher net interest margins.

CreditSights said the net interest income rose by four to 26 percent year-on-year on the back of higher NIMs and high single to mid-teen digits loan book expansion.

The BSP has raised key policy rates by 300 basis points, including the aggressive 75-basis-point hike delivered last Thursday. This brought the overnight reverse repurchase rate to a 14-year high of five percent from an all-time low of two percent.

“That said, NIMs are still likely to move higher in the coming quarters as the lag effect of the BSP’s hikes on loan yields come through. The banks have also been more active in growing their investment securities portfolios to take advantage of presently higher yields,” it said.

According to CreditSights, fee income remained steady on the back of sustained reopening with double-digit year-on-year growth.

Furthermore assets quality remained generally stable quarter-on-quarter as provision for potential loan losses in the first three quarters were aided by writebacks in the first half of the year.

CreditSights said the loan book of banks grew between 5.5 and eight percent.

“Policy tightening by the BSP has been aggressive and this is likely to dampen growth momentum going forward,” it said.

CreditSights covers Philippine banks including Sy-led BDO Unibank , Ayala-led Bank of Philippine Islands, Ty-owned Metropolitan Bank & Trust Co., Lucio Tan’s Philippine National Bank, Yuchengco-led Rizal Commercial Banking Corp., Aboitiz-led UnionBank of the Philippines, and listed Security Bank.

“The Philippine banks generally sustained the positive momentum had during the first half into the third quarter as loan growth and asset quality stayed resilient in the face of recent macroeconomic headwinds,” it said.

The research firm said it does not expect the economic rebound to be materially derailed in the second half as it booked a stronger-than-expected 7.6 percent gross domestic product (GDP) growth in the third quarter.

The Philippines booked a GDP expansion of 7.7 percent from January to September, faster that the 6.5 to 7.5 percent target by economic managers.

“However, this bolsters the case for further aggressive rate hikes by the BSP; it just recently followed through with a 75-basis point increase. Coupled with persistently stubborn inflation and the general headwinds to global growth, we expect credit costs to rise and loan growth to be tempered over the next 18 months or so,” CreditSights said.

Latest data from the central bank showed the net income of banks operating in the Philippines jumped by 43.7 percent to P243.06 billion from January to September versus last year’s P169.09 billion.

As the economy continues to recover from the pandemic-induced recession, Philippines banks are allocating less provision for credit losses.

During the nine-month period, provision for bad debts dropped by 15.1 percent to P77.4 billion from P91.16 billion in the same period last year, while the amount of soured loans written off plunged by 64 percent to P2.29 billion from P6.37 billion.