Philippine banks to continue robust growth—S&P

By Riza Lozada

Local banks are expected to continue to grow rapidly over the next two years, thanks to the strong solid economic growth, corporate profitability, low interest rates, and a drop in non-performing loans, ratings firm Standard and Poor’s (S&P) said. 

S&P’s report titled “Philippine Banks To Continue To Ride Robust Economic Growth” estimates that the banking sector in Philippines will grow at 15 percent to 17 percent in 2017 and 2018, after a 16.5 percent expansion in 2016.

“We believe that the credit cycle in the Philippines has further to run,” S&P Global Ratings’ credit analyst Ivan Tan said.

“Most of the factors that drive credit cycles–corporate profits, low interest rates, and abundant liquidity–still look very much in place,” he added.

S&P Global Ratings believes the consumer loans segment has considerable potential for growth.

However, the high branching costs to reach customers in this large archipelago is a hindrance.

Banks are also justifiably cautious, given the lack of comprehensive consumer data and the high reported consumer non-performing loans (NPLs).

While growth has been robust for banks in the Philippines, returns have been low, the report noted.

S&P Global Ratings attributes the weakness in profitability to banks’ high exposure to low-yielding corporate loans and their poor cost efficiency.

The profitability of local banks was also dented by a decline in trading income as interest rates recovered.

S&P said the outlook for banks in the Philippines is stable over the next 12 months, reflecting supportive economic conditions and sound financial fundamentals.

The banking system’s capital adequacy ratio of 15.3 percent as of March 2017 is comfortably above the regulatory minimum.

“We believe the combination of sound capital and funding profiles is an enduring strength of the Philippine banking system and will continue to underpin ratings on the country’s banks in 2017,” Tan said.