Top banks in the Philippines will likely see faster loan growth, boosting their profits, as the central bank keeps to its accommodative monetary policy stance and the economy recovers.
Total loans in the Philippines recovered in 2021 to grow 5.4%, after a contraction in 2020 due to the drag from the COVID-19 pandemic, according to data from the Bangko Sentral ng Pilipinas, or BSP. Aggregate loans grew 10.4% in 2019.
"Bank lending will likely continue its streak of positive growth for a little longer as BSP keeps rates untouched. [Loan] growth momentum may be mitigated to some extent should rate hikes be carried out later in the year," Nicholas Mapa, senior economist at ING, told S&P Market Intelligence.
BDO Unibank Inc.
Growth trajectory
BDO Unibank Inc., the country's largest bank by assets, reported its loan growth accelerated to 5.52% in the nine months to Sept. 30, 2021, after dipping to 3.42% in 2020 from 7.43% in 2019. Other major banks also saw a recovery in 2021, with Bank of the Philippine Islands' loan growth climbing to 0.26% in the nine months of 2021 from a 4.60% contraction in 2020. Philippine National Bank's lending grew to 3.98% in 2021 after it contracted 8.80% in 2020 from 12.15% growth in 2019.
"The growth trajectory that's been observed as far as several of the metrics of the banking indicators would be sustained," BSP Deputy Governor Chuchi Fonacier said at a Feb. 9 meeting with journalists in response to a question on the possible impacts on loan growth if rates rise.
S&P Global Ratings said in a Feb. 23 report it expects 5% to 7% credit growth in 2022, and that it would boost bank profits. "Return on average assets will return to the pre-pandemic level of 1.2%, compared to 1.1% in 2021," Ratings said. However, Ratings noted a rapid rise in policy rate "can dampen credit demand, push some consumers to the edge of default, and pressurize small and midsize enterprises."
The BSP kept its benchmark interest rate unchanged at 2.0% at its Feb. 17 review meeting, seeking to support the economy as it recovers from the COVID-19 pandemic. The Philippine economy grew 7.7% year over year in the fourth quarter, accelerating from 6.9% growth in the previous quarter and a turnaround from the 8.3% contraction in the prior-year period. Growth for the full year stood at 5.6%, higher than the government's target range of 5% to 5.5% for 2021. The country aims to accelerate its GDP growth rate to between 7% and 9% in 2022.
The BSP appears in no rush to raise interest rates as several global central banks, including the U.S. Federal Reserve, prepare for a liftoff. "We do not necessarily have to go in pace with the monetary policy adjustments in the U.S. Fed and therefore we will try to be patient to make sure that we are really on our way to recovery," Governor Benjamin Diokno said at a Feb. 9 press meeting. "I don't like to be changing course in the middle of the recovery."
