UBS sees 2-digit credit growth for Philippines banks

MANILA, Philippines — Banks operating in the Philippines are expected to post a double-digit credit growth this year on the back of robust economic expansion, according to banking giant UBS.

In a virtual press conference, Grace Lim, economist for Asia at UBS, said the bank has raised its gross domestic product (GDP) growth forecast for the Philippines to 5.7 percent  from the original target of  5.3 percent for this year.

“We are actually forecasting double-digit credit growth, slightly above 10 percent for the full year. Increasing GDP growth as well as solid nominal GDP growth is the reason,” Lim said.

Latest data from the central bank showed bank lending grew by seven percent to P11.7 trillion in end-2023 from P10.93 trillion a year ago.

Lim said the bank does not expect the asset quality of Philippine banks deteriorating this year.

“We don’t see any evidence of asset quality risk. And as rates come down a little bit, that could actually spur demand for loan growth,” she said.

The non-performing loan (NPL) ratio of Philippine banks improved steadily to settle at 3.23 percent in December 2023 from 3.41 percent in November 2023. This was higher than the end-2022 level of 3.16 percent.

Lim said the industry could get a boost from the lineup of capital-intensive infrastructure projects under the public private partnership (PPP) scheme.

“Also, if there are big PPP projects coming through, that could also spur some demand for loans. That might be maybe toward the second half of the year,” Lim said.

UBS sees the BSP cutting interest rates by 100 basis points in the second half of the year.

“We maintain our forecast that the BSP will cut rates by 100 basis points this year, with a 25-basis-point rate cut at each of its four scheduled policy meetings in the second half of 2024,” Lim said.