Philippine banks are expected to have faster loan growth in 2024 on robust domestic economy and the anticipated monetary policy loosening in the second half of the year, BMI, a Fitch Solutions company, said Thursday.
“We expect loan growth to accelerate from an estimated 5.7 percent year-on-year in 2023 to 10 percent by the end of 2024,” BMI said.
“Better macroeconomic conditions and lower interest rates in the second half bode well for the credit environment,” it said.
Data from the Bangko Sentral ng Pilipinas (BSP) showed that outstanding loans to residents, net of reverse repurchase, rose 7.4 percent in November, compared with 7.5 percent in October, while outstanding loans to non-residents fell 5 percent in November from a 5.1-percent decrease in the previous month.
“We expect some relief for loan growth when monetary loosening commences in the second half of 2024. At 6.50 percent, interest rates are currently at their highest in over a decade,” BMI said.
“That said, we believe the hiking cycle has finally concluded as inflationary pressures recede,” it said.
The Monetary Board, the policy-making body of the BSP, raised the overnight borrowing rate by 100 basis points last year to 6.5 percent to temper inflation that averaged 6.0 percent, above the target range of 2 percent to 4 percent.
BMI also said it expected the quality of bank assets to face challenges in the short term due to the effects of high interest rates.
“However, we do not anticipate a decline as severe as the one experienced during the pandemic. Tight monetary policy will put pressure on borrowers’ ability to repay loans,” it said.
BMI said improving profitability would allow banks to build up their buffers. “Elevated interest rates are expected to enhance net interest margins, as historical data shows a positive relationship between the two,” it said.
“The tightening cycle has already led to significant improvements in profitability ratios, with return on assets [ROA] and return on equity [ROE] rising from 1.19 percent and 9.64 percent in the first quarter of 2022 to 1.43 percent and 11.60 percent respectively in the third quarter of 2023. In the same time period, net interest margins also widened from 3.50 percent to 3.98 percent,” BMI said.