Greater private sector participation in infrastructure developments and robust economic growth may fuel credit growth in the Philippines to above 10 percent next year, according to Fitch Ratings.

In a report, Fitch said credit in the Philippines may grow by more than 10 percent if recent moves by the government to draw greater contribution from the private sector in infrastructure developments materialize.

The debt watcher said the Marcos administration has identified about 197 flagship infrastructure projects, worth around P8.7 trillion for implementation over the medium term.

Of the total, 39 projects have been earmarked for public-private partnerships (PPP).

'We estimate that successful execution of these partnerships could potentially add about one to two percentage points to credit growth next year,' Fitch said.

Credit growth slowed for the sixth straight month to hit its slowest pace in almost two years in September amid the aggressive rate hikes delivered by the Bangko Sentral ng Pilipinas (BSP) since May last year.

Bank lending slowed to 6.5 percent in September to P11.17 trillion, the lowest since the 4.8 percent recorded in December 2021 from 7.2 percent in August.

The BSP has raised key policy rates by a total of 450 basis points, making it the most aggressive central bank in the region, to tame inflation and stabilize the peso.

This brought the benchmark interest rate to a fresh 16-year high of 6.50 percent, the highest since the 7.50 percent recorded in May 2007.

From a double-digit credit growth of 10.2 percent in March, the increase in bank lending slowed to 9.7 percent in April, 9.4 percent in May , 7.8 percent in June, 7.7 percent in July, 7.2 percent in August and 6.5 percent in September.

Likewise, Fitch said the consumer loan non-performing loan (NPL) ratio has been boosted by a rapid rise in loan balances in the past year.

'We believe more impairments are likely to materialize as loans reprice, particularly for residential mortgages. We expect the impact of higher interest rates to be fully reflected in asset quality by the first half of 2024, but impairments should ease with improved economic conditions by the second half of 2024,' the debt watcher said.

According to Fitch, a weaker economic outcome, especially if coupled with prolonged inflation and a rise in unemployment, would likely result in higher delinquencies and credit costs than its projection.

The credit rating agency sees the Philippine economy growing above six percent next year after slowing to about 5.1 percent this year from 7.6 percent in 2022.

'Fitch forecasts real GDP growth to recover to above six percent in 2024, which should buoy loan demand and keep credit impairments level. Funding conditions are likely to remain conducive, as banks continue to benefit from ample low-cost deposits,' it said.

Fitch said the net interest margins (NIMs) of banks operating in the Philippines may go down by about 10 to 15 basis points in the second half of next year with the expected pivot of the BSP to an easing cycle.

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