Fitch Solutions sees faster PH loan growth
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Mon, 07 Oct 2019 16:55:15 +0000
MONETARY policy-easing in the Philippines is likely to boost loan growth this year and the next, a Fitch Group unit said.
In a report released on Monday, Fitch Solutions said it revised upward its forecast for loan growth in the Philippines to 13 percent and 15 percent in 2019 and 2020, respectively, from 11 percent and 12 percent previously.
The projected figures are still slower than the 15.7 percent growth in bank lending in 2018, based on Bangko Sentral ng Pilipinas (BSP) data.
“[W]ith monetary easing underway and a rebound in domestic confidence, we expect loan growth to improve over the coming quarters,” Fitch Solutions said.
Meanwhile, it pointed out that the loan growth forecast for next year factored in another 25 basis points (bps) cut in the central bank’s key policy rate in the first quarter of 2020.
The central bank implemented a combined 75-bps interest rate cut in May, August and September this year that brought overnight borrowing, lending and deposit rates to 4.0 percent, 4.50 percent and 3.50 percent, respectively.
The Fitch unit also said that lower inflation, a stable peso, and higher public spending in the second half of 2018 helped boost consumer confidence and it expects this to filter through to strong consumer borrowing in 2020.
“An easing of inflationary pressures on lower income households’ budgets — who incidentally scaled back most on loan demand in recent quarters when compared with middle and upper income households — should support further household borrowing in 2020,” it added.
Fitch Solutions, however, noted that a rebound in lending will still be heavily dependent on stronger borrowing from businesses as household consumer loans are a relatively small part of banks’ overall loan book.
It said that household consumer loans was just 8.5 percent of the total as of June 2019 while corporate loans accounted for about 80 percent.
As confidence among these sectors have all rebounded in the third quarter of the year, the Fitch unit sees this improvement translating to a pick-up in corporate borrowing to invest.
“A boost from fiscal stimulus and a moderate rebound in the economy in 2020 should also support a better domestic backdrop for loan growth, especially amid an easier policy stance from the BSP,” it added.
However, Fitch Solutions warned that ongoing trade tensions and a gloomier outlook for the global economy in 2020 could weigh on business sentiment over the coming quarters.
“Unresolved tensions between the US and China and a general softening of growth among the major global economies in 2020 could see softer demand for Philippine exports which would eventually filter through to weaker domestic confidence,” it said.
Above all these, it highlighted that the key risks to its forecast is for a “more pronounced downturn in the global economy to temper the impact of monetary and fiscal stimulus in the Philippines and for a significant risk-off event forcing banks to tighten credit supply to protect capital buffers.”