Bankers expect BSP to start cutting rates

MANILA, Philippines — Bankers expect the Bangko Sentral ng Pilipinas (BSP) to start cutting interest rates this year, boosting credit growth as the country’s economy gains more traction.

Jose Teodoro “TG” Limcaoco, president and CEO at Ayala-led Bank of the Philippine Islands (BPI), said easing inflation would lead to a recovery in consumer confidence and boost gross domestic product (GDP) growth this year.

Limcaoco described 2023 as resilient, noting that the banking industry’s non-performing loan (NPL) ratio remained under control, loan growth was decent, and deposit growth was in line with money supply growth.

“For BPI, we are proud of the fact that we gained market share in loans, deposits, credit cards. We grew our customer base to 11 million, and we made great strides in our digitalization,” Limcaoco said.

“Going forward, high interest rates will continue to keep loan demand muted in the early part of the year, but as people get used to the high rates and as the BSP begins to signal that inflation is under control and that rates potentially might come down, then you will see loan growth come back,” he said.

Limcaoco, who is also president of the Bankers Association of the Philippines (BAP), added that the banking industry remains comfortably positioned to continue helping the economy grow.

“The industry has worked very well with the BSP and has really appreciated the BSP’s stance on trying to manage inflation,” he said.

Latest data showed credit growth accelerated to 7.1 percent in October after slowing for six straight months. Big banks disbursed P11.31 billion in loans in end-October last year.

“All things said, consumer confidence remains relatively high, but spending on the consumer side is a bit muted because of the sticker shock of high prices, and we’re seeing that from our clients,” Limcaoco said.

Security Bank president and CEO Sanjiv Vohra said the performance of both the bank and Philippine banking sector in general could be described as one with improved asset quality, normalized credit cost, loan growth, improved net interest margins, robust liquidity and strong capital adequacy ratios.

Vohra said latest data from the central bank showed the latest NPL ratio of big banks increased to 3.21 percent in October from 3.09 percent in September.

“It remains to be seen in the succeeding months whether the October NPL ratio number is a one-off blip or a sign of worsening asset quality for the industry,” Vohra said.

He added that the industry’s net interest margin improved to 3.9 percent from 3.38 percent.

The Philippine economy is seen expanding by around six percent amid the higher-for-longer interest rates.

“Our loan growth bias in 2024 continues to be in favor of retail and MSME, after Security Bank posted a four percent loan growth year-on-year based on its latest results for the third quarter of 2023, driven by 22 percent growth in retail and MSME (micro, small and medium enterprises) loans,” Vohra said.

He added that the BSP could further raise interest rates if strong inflationary pressures persist.

“Despite the easing headline inflation, core inflation remains elevated and above the headline. This requires continued vigilance from the BSP. The BSP faces a delicate balancing act between maintaining economic growth and controlling inflation,” he said.

Rizal Commercial Banking Corp. president and CEO Eugene Acevedo also believes the BSP would begin to cut policy rates with the current slowdown in inflation.

“Some sectors like consumer and small businesses may feel the effect of higher-for-longer interest rate as this will affect their borrowing cost, but a more robust Philippine economic outlook in 2024 will support business activities,” Acevedo said.

As rates remained higher and longer, he pointed out that banks had to recalibrate their balance sheet growth accordingly.

The RCBC chief said loan growth could be seen in the opportunities in the different segments.

“We expect consumer loans to show double-digit growth as consumer spending remains resilient. SME and corporate loans will have pockets of opportunity in infrastructure spending and the overall resurgence in property development,” Acevedo said.

The Yuchengco-led bank is looking at flattish earnings for 2023 but a definite recovery in 2024, given the P27-billion capital infusion from Sumitomo Mitsui Capital Corp. in July last year.