Strong economy seen to prop up Phl banks

MANILA, Philippines - The country’s strong economic growth and ample liquidity in the financial system should support local banks this year, Standard & Poor’s said in a report published yesterday.

 “Good economic prospects and ample systemic liquidity will continue to support the financial profiles of Philippine banks in 2015,” S&P said.

S&P expects the economy expanding by 6.1 percent this year, matching last year’s growth figure. The projection is below the government’s seven to eight percent target for 2015 but still among the highest growth estimates in Asia.

“Such robust growth should continue to benefit the country’s banks, given that they mainly lend domestically. In addition, Philippine banks’ sizable pool of liquid assets will underpin lending,” S&P said.

The international credit rating agency said structural reforms on the fiscal and economic fronts have improved the business climate in the country which has also boosted spending on infrastructure.

“Over the longer term, the country’s robust economy would continue to drive expansion in domestic credit at two to three times the pace of GDP (gross domestic product) growth. We project Philippine banks’ loan growth to reach 15 percent to 18 percent in 2015, compared with 19 percent in 2014,” S&P said.

But the debt watcher cautioned against higher interest rates that could lead to losses on banks’ holdings of government bonds.

“Robust loan growth, especially a gradual shift toward higher-yielding consumer loans, could cause credit costs to rise. We also expect interest rates to continue to trend upward, which may cause banks to book marked-to-market losses on their significant holdings of fixed-rate government bonds,” S&P said.

“Meanwhile, fierce local competition will constrain banks’ ability to reprice their loans amid rising interest rates,” it said.