Philippine banks to sustain credit growth of 10-12% in 2013

The system’s ratio of credit to GDP is low at about 30%.

Standard & Poor's said a buoyant GDP has fueled the growth in bank loans and led to improvements in asset quality. The ratings agency expects this trend to continue with the banking sector sustaining its credit growth of 10% to12% in 2013.

S&P said a number of factors contributed to the sustained improvement in the system’s reported asset quality: banks’ efforts toward strengthening risk management, rehabilitating distressed assets, and recovery; the denominator effect of robust loan growth; and a loose monetary policy and low interest rates.

S&P believes the risk of a default in the banking system is not material despite the recent rapid expansion in credit. Private sector indebtedness is one of the lowest in Asia-Pacific.

The system’s ratio of credit to GDP is low at about 30% compared with more than 100% for the systems in Singapore and Hong Kong.

S&P expect the Philippine economy to maintain its growth momentum in 2013. GDP grew in 2012 despite weak export demand, reflecting strong support for underlying growth including an acceleration in public infrastructure spending and a pickup in private investment. More important, private consumption benefited from strong credit growth.

S&P believes the tougher Basel III capital reforms are unlikely to dampen the banking sector’s growth impetus given Philippine banks’ sufficient regulatory buffers.

Last July, S&P upgraded the Philippines’ credit rating to ‘BB+’ with Stable outlook from ‘BB’ after noting the continued improvement in the country’s fiscal flexibility.