Banks seen to maintain profitability until 2025

Philippines lenders will likely maintain their profitability until 2025 even as economic growth is expected to ease, according to S&P Global Ratings. 

The profitability of Philippine banks will “hold up” for the next three years despite slower gross domestic product (GDP), the debt watcher said in an Oct. 18 report written by Nikita Anand, associate director at S&P Global Ratings.

Philippine banks’ return on average assets will likely stay at around the 1.4-1.6% levels until 2025, it said.

The Philippine banking industry recorded a higher net profit in the first half of the year as the cumulative net income grew by 27.7% to P182.76 billion from P143.12 billion in the same period in 2022, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Other measures of profitability, such as return on assets (RoA) and return on equity (RoE), also improved in the first quarter of the year.

The banking industry’s RoA stood at 1.5% in the January-to-March period, higher than the 1.2% recorded in the comparable year-ago period.

Meanwhile, RoE inched up to 12.6% from 9.6% in the first quarter of 2022.

Credit losses among Philippine banks will stay flat for the next three years, while strong deposits from households will provide stable funding, S&P Global Ratings noted.

Latest data from the BSP showed the banking sector’s gross nonperforming loan (NPL) ratio slipped to 3.42% as of end-August from 3.43% at end-July and from 3.53% in the same month last year.

The NPL ratio in August was the lowest in four months or since 3.41% in April.      

Bad loans declined by 5.9% year on year to P442.9 billion as of end-August. However, it was 0.6% higher than P440.1 billion seen at end-July.

The debt watcher also maintained its stable credit outlook for Asia-Pacific financial institutions, including Philippine banks. 

The debt watcher sees the Philippine economy growing by just 5.2% this year, below the government’s target of 6-7% for 2023 and slower than the 7.6% GDP expansion in 2022.

S&P sees Philippine growth at 6.1% in 2024 and at 6.2% in 2025. — Keisha B. Ta-asan