Fitch Ratings believes loan growth and asset quality of Philippine banks will remain resilient amid higher interest rates and persistent global macroeconomic uncertainties.

In a report, the debt watcher said the outlook for the country's banking sector remains favorable.

Fitch-rated banks in the Philippines are likely to enjoy wider net interest margins (NIMs) in the near term.

'Banks continue to enjoy tailwinds from asset repricing, while increases in funding costs are mitigated by a banking system that remains liquid despite aggressive monetary tightening over the past year,' Fitch said.

The debt watcher rates BDO Unibank, Bank of the Philippine Islands, Metropolitan Bank and Trust Co. as well as state-owned Land Bank of the Philippines and Development Bank of the Philippines.

'We believe the rated banks have recognized and provisioned for most pandemic-related asset-quality issues,' Fitch said.

It warned that higher lending rates would add asset quality pressure, but the high proportion of loans to large corporates tend to have stronger financial buffers.

'These banks also have ample earnings and credit allowances to manage credit costs,' it said.

After hitting an all-time high of P310.12 billion last year, the earnings of Philippine banks jumped by 43 percent to P94.62 billion in the first quarter from P66.34 billion in the same period last year amid the aggressive rate hikes by the Bangko Sentral ng Pilipinas (BSP) to tame inflation and stabilize the peso.

'We expect banks' loan yields to rise further as new loans and refinancing are repriced. NIMs will also benefit from the easing of a cap in credit card interest rates since January 2023, and from a potential cut in reserve requirements that BSP has publicly considered,' it said.

Data also showed that the non-performing loan (NPL) ratio of the banking sector inched up for the third straight month to 3.33 percent in March from 3.31 percent in February. This was the highest since the 3.35 percent booked in November last year.

The soured loans of Philippine banks increased for the third straight month to hit P414.61 billion in March, although 9.9 percent lower than the P460.46 billion recorded in the same month last year.

'Banking sector profitability and asset quality have improved in tandem with the economy,' Fitch said as it expects the country's gross domestic product (GDP) to grow by six to 6.5 percent over the next two years, slower than last year's 7.6 percent.

'Growth is likely to moderate in 2023 as elevated inflation and interest rates sap household purchasing power. We believe the central bank is at the tail end of its rate hike cycle after raising its policy rates by 425bp since May 2022, which was among the most aggressive for central banks in Asia Pacific,' it said.

The credit rating agency expects the BSP to cut interest rates last year to support economic growth of 6.5 percent for 2024.

Fitch said consumer lending outpaced business loan growth amid strong consumer spending and a corresponding rise in banks' risk appetites to cater to these opportunities.

'Consumer lending growth is likely to moderate in 2023 as the effects of higher interest rates reach the broader economy, but it should remain a key growth driver in the medium term,' it said.

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