Maybank sees rosy year for Phl banking sector

MANILA, Philippines - The Philippine banking system is forecast to register a 14 percent in net profits and loan growth and loan growth of 18 percent in 2015, according to Maybank ATR Kim Eng.

“We expect average return on equity (ROE) to be fairly stable at 11.3 percent in 2015 from the forecast 11.4 percent in 2014,” Maybank ATR Kim Eng analysts Katherine Tan and Arabelle Maghirang, said in a report.

The Philippine banking sector is expected to benefit from the country’s strong macroeconomic growth that will further strengthen credit demand amid a benign outlook on inflation and interest rates, abundant liquidity, as well as continued inflows from overseas remittances and the BPO industry.

Full year 2014 gross domestic product (GDP) registered at 6.1 percent on the back of the unexpected 6.9-percent expansion the Philippine economy in the fourth quarter of 2014.

They said that operating profit growth zoom to 11.4 percent in this year from a forecast 11-percent decline last year, on the back of an 18-percent loan expansion, a marginal 11-basis point rise in net interest margins (NIMs), a 14-percent increase in net interest income and fees, and a slight recovery in non-interest income.

Net profit growth is likewise projected at a faster 14 percent this year on lower credit cost assumption compared with three percent in 2014.

Average return on equity to be fairly stable at 11.3 percent in 2015 from 11.4 percent last year.

Strong loan demand was evident last year.

In the seven months ending November, growth was at least 20 percent. In November, growth was typically broad-based with loans for production activities up 19 percent and household consumption 21 percent.

Maybank said that with domestic demand expected to remain robust as consumers and businesses benefit from falling fuel prices, more government spending and sustained investment by the private sector, we estimate 2015 bank lending to expand 18 percent.

This will be supported by a benign outlook on inflation and interest rates, as well as continued inflows from overseas remittances and the BPO industry.

Meanwhile, pressure on NIMs is expected to persist due to intense competition and abundant liquidity in the system.

Despite the Bangko Sentral ng Pilipinas (BSP) 50 basis points policy rate hike to four percent last year, the 50-bp rise in the special deposit account (SDA) rate to 2.5 percent and the 200-bp increase in reserve requirement to 20 percent.

The Bank of the Philippine Islands (BPI) in December 2014 however published home loan fixed-rate promos of six percent for a two-year loan and 6.88 percent for a five-year loan.

These are lower than respective industry rates averaging 6.5 percent and 7.5 percent. “We expect other banks to at least match whatever BPI is offering,” the Maybank report said.

Interest rates in the consumer sector are expected to remain benign.

Corporate loans may see a slight expansion as most loan agreements are pegged to the central bank’s policy rate.

Maybank expect the BSP to hike the policy rate a further 50 basis points premised on the US Federal Reserve tightening in the second semester this year. Asset yield on interest-earning assets would rise 15 bps while funding costs to increase by four bps.

“In all, we expect a marginal 11-bp expansion in NIMs compared with seven-bp contraction last year,” it said.