Bank chiefs optimistic on industry growth

Top executives of Philippine banks see continued growth in the industry this year, as expected policy rate cuts from the Bangko Sentral ng Pilipinas (BSP) in the second half may spur consumer and loan demand.

“I think this is a good year for the banks,” Bank of the Philippine Islands (BPI) President and Chief Executive Officer (CEO) Jose Teodoro K. Limcaoco told reporters during the central bank’s Annual Reception for the Banking Community on Friday.

He noted the Philippines has a more positive economic outlook compared with the rest of the Association of Southeast Asian Nations (ASEAN) member countries.

“When you look at the forecasts, we have the highest forecast of GDP (gross domestic product) among the ASEAN economies,” Mr. Limcaoco said.

Multilateral institutions such as the World Bank and the ASEAN+3 Macroeconomic Research Office (AMRO) project the Philippines to grow by 5.8% and 6.3%, respectively, making it the fastest-growing economy in the region this year. However, both projections are below the Philippine government’s 6.5-7.5% GDP target for 2024.

“And since inflation is under control, it seems confidence is high in the banking sector. We’ve been beginning to see borrowers come back with interest,” Mr. Limcaoco said.

Headline inflation stood at 3.9% in December, which brought full-year inflation to 6% in 2023. This is the second straight year that inflation breached the BSP’s 2-4% target band.

Meanwhile, Rizal Commercial Banking Corp. (RCBC) President and CEO Eugene S. Acevedo said there should be better opportunities this year, especially as inflationary pressures have significantly diminished and the BSP is ex-pected to start easing policy.

“My opinion is not very different from the general opinion. We’re seeing roughly 100 basis points (bps) (worth of cuts) by the end of the year,” Mr. Acevedo told BusinessWorld.

He said the BSP may start cutting interest rates in the second semester or in the third quarter this year.

“What is more important is that there seems to be a consensus as to the direction and magnitude of the (rate) reduction,” he said.

The Philippine central bank has raised rates by a cumulative 450 bps from May 2022 to October 2023, bringing the benchmark rate to a 16-year high of 6.5%.

BSP Governor Eli M. Remolona, Jr. also earlier signaled that policy easing is likely within the year, but not in the first six months due to risks to the inflation outlook.

“I’m hopeful that we’re going to see an increase in the demand for banking services, especially in loans as interest rates are coming down,” RCBC’s Mr. Acevedo said.

Based on the latest data from the central bank, outstanding loans issued by big banks increased by 7% year on year to P11.4 trillion in November 2023.

According to Mr. Limcaoco, market players postponed most of their business and investment decisions and were waiting for borrowing costs to come down.

“Now, they have decided we need to borrow already, or they say, things might be coming down by the second half. We believe rates will come down in the second half,” he said.

The BPI president and CEO noted that despite high interest rates, consumer spending remains robust and strong, especially with credit card billings.

“When you look at credit losses, it’s very controllable. Nonperforming loans (NPLs) are very manageable. It looks like 2024 will be a good year,” Mr. Limcaoco added.

Separate BSP data showed banks’ NPL ratio stood at 3.41% in November, easing from 3.44% in October but still above 3.35% a year prior. It marked the lowest in two months or since 3.4% logged in September.

“Interest rates are on the way down. This will help the regular consumer. Our economy is one of the fastest growing in Southeast Asia, and this is going to be a great year,” Union Bank of the Philippines President and CEO Edwin R. Bautista told BusinessWorld.

The Monetary Board’s first policy review is on Feb. 15.

RISKS TO THE OUTLOOK

BPI’s Mr. Limcaoco said uncertainties surrounding the global economy and rising geopolitical risks may affect the growth outlook for the Philippines this year.

“The issues over the Suez Canal, that might cause some trade costs to rise, but really its political and there’s nothing we can do. We just sit and watch,” he said, referring to the series of attacks by Houthi rebels on civilian ships in the Red Sea that has disrupted global trade.

Metropolitan Bank & Trust Co. President and CEO Fabian S. Dee said he hopes the external shocks would not affect the Philippines that much.

“We now have such a good story,” he said in mixed English and Filipino. “Inflation is going down… I think we have a good year ahead of us. I just hope it’s quiet in the Middle East.”

Meanwhile, the BSP is expected to wait for future policy moves from the US Federal Reserve, East West Banking Corp. CEO Jerry G. Ngo said.

“I think the Fed (will cut) maybe in the second half this year,” he told BusinessWorld. “But the numbers are not clear either way. I think we need to get used to higher for longer.”

The US central bank hiked the Fed funds rate by 525 bps from March 2022 to July 2023, bringing its target Fed funds rate to the 5.25-5.5% range.

Mr. Ngo said the BSP will mirror the Fed’s policy rate cuts this year.

“We cannot be too detached because it affects the foreign exchange (FX) rates at the end of the day, and the FX rates are at a particular band also,” he said.

The peso hit an all-time low of P59 against the dollar in October 2022, as the US Fed and the BSP delivered aggressive interest rate hikes during that time.

The local unit closed at P56.27 per dollar on Monday, strengthening by two centavos from its P56.29 finish on Friday, Bankers Association of the Philippines data showed. — By Keisha B. Ta-asan and Aaron Michael C. Sy, Reporters