LOANS being granted by banks in the Philippines could increase by 18 percent this year as the industry stands to benefit from the country’s strong growth prospects and sustainable lending practices, which have supported long-term asset quality, according to the Fitch-owned BMI Research.
This is a significant improvement from 12 percent growth it had forecast previously and the 12.76 percent expansion attained in 2015.
In its latest report BMI Research said that banks in the country are well-placed to ride out the global malaise in the financial services sector on the back of the country’s strong domestic macroeconomic outlook.
“With loan growth and asset quality faltering across a number of Asia’s more established economies (China, Singapore, Hong Kong, and Taiwan, among others), the Philippines is in a relatively robust position,” it stated.
The Philippines’ strong macroeconomic outlook—which is projected by BMI to grow at 6 percent in 2016, and 5.9 percent in 2017—will help to power strong credit uptake over the coming quarters as both businesses and households assume leverage against a backdrop of profitable opportunities and positive sentiment, it said.
At the same time, the think tank also pointed out that the Philippines remains one of Asia’s least leveraged economies, with a total non-financial sector debt-to-gross domestic product (GDP) ratio of just 111 percent as of 2015.
“This makes the Philippines the second least-leveraged major economy in the region (ahead of only Indonesia, which has a total debt-to-GDP ratio of 88 percent),” it stated.
BMI Research added that while a wide range of Asian countries have leveraged up significantly dating back to the global financial crisis, the Philippine has scarcely added to its stock of debt relative to GDP.
“We believe that this reflects sustainable lending practices from the financial sector, which are likely to have been encouraged by the Bangko Sentral ng Pilipinas (BSP)’s prudent monetary policy over recent years,” it said.
In particular, BMI noted that the BSP has successfully held down inflation over the past six years, keeping real interest rates positive.
“At the same time, it has closely and proactively monitored lending to the real estate sector, likely preventing the formation of a significant housing bubble even as such bubbles arose elsewhere in the region,” it said.
The think tank further said that the fact that the Philippines’ total debt-to-GDP ratio has only expanded by less than 10 percentage points since the global financial crisis suggests that the financial sector has largely avoided the lending binges that have plagued other fast-growing economies.
“This means that even after a sustained run of fast real GDP growth (averaging 6.5 percent per annum between 2012-2015), asset bubbles are not prevalent across the economy,” it said.
“In turn, we see little propensity for a significant deterioration in asset quality (the Philippines’ non-performing loan ratio stood near a multi-year low of 1.7 percent in May). This places financial institutions in a strong position to continue to expand lending over the near-to-medium term,” it concluded.