S&P sees risks in rising consumer lending

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PHILIPPINE banks may also face risks from increased lending to consumers to boost yields, S&P Global Ratings said.

“Philippine banks are growing consumer loans faster to improve the yield. It’s for yield enhancement purposes, but they are taking on incremental risk in the process also,” S&P Global Ratings Director and Lead Analyst for Southeast Asia Financial Institutions Ratings Ivan Tan said in a media briefing on Wednesday.

“We have been observing a risk-on behavior where the Philippine banks are maintaining the large corporate loans but growing almost twice as fast in the higher yielding and higher risk consumer segment,” Tan added.

Philippine banks’ nonperforming loan (NPL) ratio rose to 3.57 percent in May, up from 3.45 percent in April, reaching its highest level since July 2022 with the same rate.

NPLs are loans that have been overdue for 90 days or more, including those with three or more missed monthly payments and are considered high-risk assets.

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Tan said they are closely monitoring the situation because it indicates risk-taking behavior.

He reiterated that loan growth is expected to pick up only in 2025 following recent adjustments to the Philippine central bank’s key policy rate.

“We think that the loan growth will start to pick up, but at a very slow rate,” Tan said.

“So even with this 25 basis points rate cut, 6.25 policy rate versus what I would consider a normalized 3 percent rate, it’s still quite high. So it’s not going to have any immediate impact on loan growth,” he added.

He added that loan growth is expected to rise next year, as they anticipate a policy rate cut to 5.0 percent.

The Bangko Sentral ng Pilipinas (BSP) slashed the key policy rate by 25 basis points to 6.0 percent, ending the 17-year high of 6.5 percent.

While analysts are expecting two more rate cuts this year, BSP Governor Eli Remolona Jr. has maintained that one more 25-bps may be implemented this year.

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