THE Philippine banking system is expected to maintain a steady credit profile, despite the rapidly rising interest rates in the country, as the Bangko Sentral ng Pilipinas (BSP) tries to bring down inflation rates, an international credit watcher said.
In its assessment made public on Wednesday afternoon, Fitch Ratings said Philippine banks will likely keep their generally stable credit fundamentals, amid rising domestic interest rates and choppier market conditions.
“Higher lending yields should bode well for interest incomes, and we expect any softening in loan growth and credit quality to be modest as economic fundamentals remain supportive,” Fitch Ratings said. The credit watcher—which rates the Philippines at “BBB” with a stable outlook—said the major local banks’ net interest margins (NIM) mostly improved in the first half of 2018 as market interest rates rose.
“…We expect this trend to continue. The Central Bank has raised its key policy rate by 100 basis points since May 2018 in response to above-trend inflation, and further hikes are possible. This should continue to drive asset yields and NIM expansion for the rest of the year,” Fitch Ratings said.
“Higher debt repayments may hurt asset quality, especially for borrowers on adjustable rate loans. However, we expect such effects to be limited in the near term. Higher rates are still manageable on the whole, and economic growth drivers remain broadly sound,” it added.
The BSP will have its next monetary policy meeting this Thursday (September 27), and markets expect the Monetary Board to hike rates further as inflation remains elevated.
The credit watcher also said the economy will likely be less affected by global trade uncertainty compared to its neighbors, and growth should largely remain domestically driven in the near term.
Fitch, however, flagged the need to watch this year the local banks’ funding costs.
“Time-deposit rates have risen over the last 12 months, and more intense funding competition could exert greater pressure on NIMs. Banks with less entrenched domestic franchises and tighter liquidity positions are likely to be more sensitive to funding cost pressures,” Fitch Ratings said.
“Stable, low-cost funding such as current and savings accounts will continue to be a focus for banks in this environment,” it added.