BPO sector seen to drive PHL growth

Citigroup Inc. (Citi) expects the Philippine economy to expand by around 6% this year, partly driven by sustained growth in the business process outsourcing (BPO) sector.

“We expect the growth in 2025 to stay within the 6% handle,” Citi Asia South Head Amol Gupte said in an online briefing on Monday.

Citi’s forecast would be at the low end of the government’s 6-8% target for the year.

“The Philippines will continue to benefit from [the BPO industry] and will create a lot of jobs. On moving up the value chain on global capability centers, countries like the Philippines will play a very large role along with India,” Mr. Gupte said.

The information technology and business process management (IT-BPM) industry ended 2024 with USD 38 billion in export revenue, and 1.82 million full-time employees.

Under the Philippine IT-BPM Industry Roadmap, the target is to grow into a USD 59-billion industry and increase the full-time employee count to 2.5 million by 2028.   

“So, I think it’s really important that the Philippines, as it thinks about the BPO industry, moves up the value chain so that it retains and bring more middle-office kinds of jobs beyond the voice jobs that exist in the tens of thousands,” Mr. Gupte said.

However, the rise of artificial intelligence (AI) could be a risk to the IT-BPM sector in the Philippines.

“There’s also the risk to that in terms of what AI will do to that industry and whether that will reduce jobs,” Mr. Gupte said.

Meanwhile, Citi South Asia Corporate Banking Head K Balasubramanian said sustained economic growth ensures that Philippine banks are well-positioned to continue to generate profits.

“I think the financial profile of the Filipino banks continues to be very strong, and with 6% growth I think they are well capitalized to look at the opportunities ahead,” he said.

As of end-September 2023, the Philippine banking system’s net profit rose by 6.4% to P290 billion as both net interest and non-interest income grew.

“We just saw the upgraded Philippine sovereign rating that happened in the fourth quarter of last year. And if you look at the impact of that on the Republic of Philippines, as well as the state-owned banks of the Philippines, I think that’s going to be crucially positive because we are now up to BBB+,” Mr. Balasubramanian said.

“(This) means that the ability to access international financing is going to be better and even the cost of the access is going to be better than what it was in the past.”

In November, S&P Global Ratings affirmed the Philippines’ investment grade rating and raised its outlook to “positive” from “stable” to reflect the economy’s strong growth potential amid improved institutional strength on the back of “effective policy making.”

The debt watcher affirmed its “BBB+” long-term credit rating for the country, which is a notch below the “A” level grade targeted by the government.

A positive outlook means the Philippines’ credit rating could be raised over the next two years if improvements are sustained.

Also Mr. Gupte noted the banking industry’s financial performance this year would depend on the interest rate environment.

“On profitability of Philippine banks, I think they’re all extremely strong. They have strong balance sheets; they have low nonperforming loans. But I think that whole profitability is going to depend on how the rate environment moves both globally and how that impacts the Philippines given the large proportion of interest income that Philippine banks depend on,” he said.

The Monetary Board has slashed benchmark borrowing costs by a total of 75 basis points since it began its easing cycle in August, bringing its policy rate to 5.75%.

Bangko Sentral ng Pilipinas Governor Eli M. Remolona, Jr. this month said they still have room to continue cutting interest rates as inflation is well within its annual goal.

The Monetary Board will hold its first rate-setting meeting for this year on Feb. 20. — A.M.C. Sy