London- and New York City-headquartered Fitch Ratings said so-called asset-quality risks the various Philippine banks face at present are increasing due to the rising cost of living and higher interest rates.
It also forecasts local output growth measured as the gross domestic product (GDP) averaging significantly lower this year at only 5.5 percent from actual performance where the economy in 2022 expanded above the target to 7.6 percent instead.
This surfaced in latest assessment the global credit watcher released late on Sunday by its Singapore office, noting that domestic inflation have pushed way past official targets and making more compelling the adoption of fiscal and monetary policy responses to curb possible price spirals.
Thus far, the Bangko Sentral ng Pilipinas (BSP) raised its short-term borrowing rate to 6 percent at its rate-setting meeting in February, which validated market forecasts and pushed the cost of money and borrowing to more prohibitive levels as a result.
This policy response, in turn, was borne of inflation having climbed to 8.7 percent as of January this year, which is acknowledged as the largest consumer price expansion in more than 14 years.
The BSP targets inflation ranging only from 2 percent to no more than 4 percent this year.
Nevertheless, Fitch Ratings said any deterioration in credit quality will likely be manageable due to adequate financial buffers of the main borrowers and the robustly growing economy.
It ruled out an industry-wide impairment of bank operations as their credit exposure is distributed across borrowers rather than concentrated on a few.
“A protracted economic slowdown could result in lumpy impairments for many of the banks, given their high single borrowers’ concentration, but this is not our base case,” Fitch Ratings said.
“Large corporate borrowers, which dominate the banking sector’s loan portfolio, are in relatively strong positions to weather higher financing costs. Earnings buffers are more than sufficient to cover the expected increase in interest expenses for the vast majority of debt among listed corporates,” according to the global credit watcher.
“Small businesses and consumer loans are more vulnerable, given their thinner buffers, but any weakening is likely also going to be manageable as we expect the job market to remain resilient in the near term.,” Fitch said.
