, Philippines
Photo courtesy of Krisia Vinzon.

Philippine banks’ credit costs to further decline in 2022

Profits are expected to strengthen throughout the year as the economy recovers.

Philippine banks’ credit costs are expected to decline in 2022 with the most stressed loans either already recognised or restructured, reported S&P Global Ratings.

Credit costs are forecasted to drop further to 0.6% to 0.8% of loans, following a steep decline to about 1% throughout 2021.

The sector’s nonperforming loans (NPLs) of 4% and restructured, performing loans–which is at 2.2% of total loans–are at manageable levels, the ratings agency added. 

Some slippage is possible from the restructured pool, especially from the services sector and from stretched consumers, S&P warned. However, Philippine banks are well placed to absorb this residual stress given their improved capitalization and adequate provisioning coverage. 

“Overall, we believe the banking sector's NPL ratio has peaked and is likely to gradually decline supported by recoveries and write-offs,” S&P wrote.

Compared to regional peers such as Indonesia, Malaysia, and Thailand, the Philippines' ratio of restructured loans is noted to be significantly lower.

Profits on the rise 
Along with lower credit costs, Philippine banks' profits are expected to strengthen in 2022, as the economy recovers with an expected gross domestic product growth of 7.2% in 2022.

The banking sector's return on average assets will return to the pre-pandemic level of 1.2%, compared with 1.1% in 2021, S&P said, on the back of higher credit growth, increase in fee income as business activity picks up, and lower credit costs. 

Banks can also look forward to an uptick in demand for loans, with S&P forecasting credit growth of between 5% and 7% throughout the year.

“Any reduction in banks' regulatory reserve requirement can push credit growth toward the higher end of our forecast,” S&P said.

However, the agency warned that a significant rise in lending rates could dampen demand for credit and add to borrowers' interest burden, which could pressure asset quality. This is likely to affect highly indebted and lower-rated borrowers. 

“Moreover, past rate hikes indicate that banks' ability to price up is suppressed by steep competition, especially for loans to large conglomerates. As such, the banking sector's good capital position and provisioning provide a cushion against any unexpected losses,” S&P said. 

Banks' disposal of NPLs to asset management companies could also bring down the level of stressed loans visible in the system.

Follow the links for more news on

Join Asian Banking & Finance community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!


Digibank by DBS sets new digital banking standards
Apart from speed and convenience, DBS stays ahead with exceptional personalisation, open banking, and enhanced security.
Trust Bank sets the bar for digital banking in Asia Pacific
The digital bank targets to be Singapore's fourth largest retail bank, CEO Dwaipayan Sadhu said.
Retail Banking
Greenwashing in banking: real concern or overblown issue?
Reputational risks abound for those who drag their feet about sustainability or engage in greenwashing.