Philippine banks takes back pre-pandemic profitability in mid-2022: analyst

NPL in the country’s banking sector has peaked and will continue to decline.

The Philippines banking sector is taking back its pre-pandemic profitability as credit costs continue to moderate according to the Global Banking Outlook Midyear 2022 by S&P Global.

The report revealed that the Philippine banks' return on assets will edge closer to the pre-pandemic level of 1.2% as credit costs are expected to decline from 0.6% to 0.9% in 2022 from 0.9% last year.

S&P estimates that the non-performing loan (NPL) ratio has peaked and will continue to gradually decline to 3.8% by the end of the year. This is because most weak loans have either
been recognized or restructured. 

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S&P analyst Nikita Anand expects a 3% slippage of of total loans from the restructured pool, especially from the service sector. Banks' disposal of NPLs to asset-management companies could bring down the level of weak loans visible in the system.

“Sector-wide profits are likely to return to pre-pandemic level in 2022, with the sector's return on average assets increasing to 1.2%-1.3%. This is on the back of higher credit growth, margin improvement from expected policy rate hikes, and lower credit costs. We forecast credit growth of 5%-7% following better economic growth. Any reduction in banks' regulatory reserve requirement could push credit growth toward the higher end of our forecast,” Anand said.