Fitch Ratings said policy interest rates will fall in most of Southeast Asia’s large economies in 2025, but banks in some regional systems would benefit if the decline in rates is shallower than expected.
Banks’ capacity to cut deposit rates and manage wholesale funding costs will be key in determining outcomes. This capacity tends, in turn, to reflect the strength of their deposit franchise and the diversity of their funding mix, it said.
“We believe Philippine and Singapore banks will be key beneficiaries if rates are higher than we expected. Our rated banks in these markets have good funding profiles and are in liquid banking systems that can capitalize on yields staying buoyant while keeping deposit rates lean,” it said.
“This should position them to enjoy modestly higher net interest margins (NIM) than in our base case, under this scenario. However, smaller Philippine banks may benefit less than their larger peers, as their weaker competitive advantage in chasing deposits and lending opportunities tends to constrain their NIM. We currently expect only modest reductions in interest rates in Thailand, but the mild NIM downside pressure we forecast may be alleviated if rates are not cut as we expected,” Fitch said.