Phil’s ASSET QUALITYIppine’s banks are expected to improve in 2025, supported by strong economic expansion, credit growth and lower interest rates, Fitch Ratings said in a note on Thursday.
“We expect improvements in the ratio of non-performing loans (NPLs) in five of the 14 larger Asia-Pacific markets in 2025, before rising to nine in 2026,” the rating agency said. “The biggest near-term improvements are likely to be in India, Vietnam and the Philippines, driven mainly by robust economic expansion and credit growth, with the Philippines also benefiting from lower interest rates.”
Philippine central bank data shows the banking sector’s bad credit ratio rose to 3.6% in October, up from 3.47% in September and 3.44% a year ago. This was the highest bad credit ratio since May 2022, comparable to June 2022 levels.
Soured loans rose 1.3% to P524.31 billion in October from P517.45 billion a month earlier. Year on year, bad loans increased by 16.7%.
“We expect stable or declining credit costs across most Asia-Pacific banking systems due to gross domestic product growth and steady unemployment,” Fitch Ratings said.
The Development Budget Coordination Committee last week cut its growth target from 6-7% to 6-6.5% this year, after slower-than-expected growth in the third quarter.
Banks in emerging markets, including the Philippines, could also benefit from a possible increase in US rates due to a stronger dollar, which could prompt central banks to raise their borrowing costs.
“This would result in a positive impact on the banking sector’s revenues,” the credit rating agency said. “Indonesia stands out as an exception, where banks generally benefit from lower rates due to their specific asset/liability configuration. Higher interest rates may lead to higher bank revenues, but are also likely to hamper loan demand and increase risks to asset quality.”
The debt watcher also expects double-digit credit growth for Philippine lenders amid higher risk appetite over the next two years due to robust economic growth, competition and increasing financial inclusion. These have motivated banks to tap riskier segments to boost their credit growth.
Fitch Ratings cited Philippine banks’ stronger appetite for higher-risk unsecured retail loans and loans to small and medium enterprises.
However, the credit rating agency said it could face risks to asset quality as the business environment becomes more volatile.
“Philippine banks have historically shown greater vulnerability in a less favorable environment, albeit mainly for segments other than the larger banks’ exposure to large conglomerates,” the report said. — Aaron Michael C. Sy