Philippines: Persistent inflation, rate hikes to slow credit growth

MANILA, Philippines — Persistent inflation and the consequently more aggressive policy tightening by the Bangko Sentral ng Pilipinas (BSP) may temper credit growth of Philippine banks, according to CreditSights Inc.

In a report, CreditSights said that recent macroeconomic headwinds have not translated into a significant impact on loan growth or asset quality.

“While near-term growth is likely to be tempered by the backdrop of persistent inflation and consequently more aggressive policy tightening by the BSP, we do not expect the economic rebound over the next two quarters to be materially derailed,” CreditSights said.

Latest data from the BSP showed that loans released by universal and commercial banks grew by 12 percent in June, the fastest since the 12.7 percent recorded in April 2020, from 10.7 percent in May.

Loans disbursed by big banks amounted to P10.19 trillion in end-June, P1.09 trillion higher than the P9.1 trillion recorded in end-June last year.

“The sustained growth in credit will support the momentum of economic recovery amid the ongoing withdrawal of monetary accommodation,” the BSP earlier said.

“Loan growth for banks may come in slightly below target, but we do not see a large fallout in asset quality; credit costs are likely to rise in the second-half, but on a full-year basis should come in broadly within guidance set out at the start of the year,” CreditSights said.

It pointed out that Philippine banks, especially the first-tier ones, have high exposure to large corporates that are more resilient in a downturn.

“However, the risks here are a much sharper devaluation in the Philippine peso against the dollar and the companies not adequately hedging their foreign exchange exposures; this risk is currently more manageable as the peso has stabilized following the recent pace of rate hikes by the BSP,” CreditSights said.

Philippine banks, CreditSights said, had a good first half as the sustained reopening of the economy sans a brief COVID resurgence in January provided a conducive backdrop for fee income and loan growth, as well as

sharply reduced credit costs, and with that profitability is back at or near pre-pandemic levels.

Preliminary data from the central bank showed that earnings of Philippine banks increased by 16.7 percent to P143.12 billion in the first semester of the year from P122.67 billion in the same period last year.

“The Philippine banks had a good first half performance with profitability back at or nearing pre-pandemic levels, as recent macroeconomic headwinds have not translated into a significant impact on loan growth or asset quality,” CreditSights said.