Bank credit growth may slow this year

MANILA, Philippines — Ayala-led Bank of the Philippine Islands (BPI) sees a low single-digit credit growth for the banking sector this year amid the high interest rate regime after a yearlong tightening cycle by the Bangko Sentral ng Pilipinas (BSP).

In an online press briefing, BPI vice president Marco Javier said the non-performing loan (NPL) ratio of Philippine banks is likely to be stable at three to four percent.

“We’re looking at low single digits for credit growth and NPLs probably near the three to four (percent) handle. Again, the lag effects of monetary tightening will probably be creeping in the latter part of this year,” Javier said.

The BSP hiked key policy rates by a cumulative 425 basis points to tame inflation and stabilize the peso. This brought the overnight reverse repurchase rate to 6.25 percent, the highest in 16 years.

As inflation cooled, the central bank decided to take a prudent pause by keeping interest rates unchanged in the last two rate-setting meetings in May and June.

Latest data from the BSP showed that universal and commercial banks recorded a single-digit credit growth for the first time in 12 months, as loan disbursements slowed to 9.7 percent in April from 10.2 percent in March.

Since the interest rate liftoff in May last year, credit growth reached a high of 13.9 percent in October and November as the economy further reopened with the lifting of strict COVID quarantine and lockdown protocols.

On the other hand, the share of bad debts to the banking sector’s total loan book climbed for the fourth straight month, hitting a seven-month high in April on the back of slower credit growth.

Preliminary data from the central bank showed that the NPL ratio of Philippine banks rose by 3.41 percent in April, the highest since the 3.42 percent recorded in September last year from 3.33 percent in March.

The industry’s NPL ratio improved steadily to a two-year low of 3.16 percent in December 2022 after hitting 3.97 percent in December 2021. The ratio peaked at 4.51 percent in July and August 2021 as the economy struggled due to the impact of the pandemic.

According to the BSP data, bad debts of Philippine banks declined by 4.5 percent to P427.26 billion in April from P447.44 billion in the same month last year.

However, the industry’s soured loans have increased for the past four months from P398.79 billion in December.

“But again, they (NPLs) should still be relatively lower than the peak that we saw during the height of the pandemic,” Javier said.

BPI lead economist Jun Neri said the 171-year-old bank raised its gross domestic product (GDP) growth forecasts to 6.3 percent for this year and 6.5 percent for next year after a stronger-than-expected expansion in the first quarter.