Philippine banks to see higher credit demand but lower earnings in 2024

The bad loan ratio is expected to deteriorate, but it should be manageable.

Philippine banks are expected to see lower earnings in 2024 compared to the prior year, although credit demand will increase.

In their 2024 outlook report, S&P Global Ratings noted that Philippine banks will likely see credit growth of 10% to 12% in 2024, higher than the estimated 7% to 9% in 2023. Losses are expected to remain flattish at 0.6% to 0.7% of gross loans in 2024.

“We forecast a manageable deterioration in the non-performing loan ratio. Large corporates, which form the bulk of the sector's loan portfolio, should be able to absorb the higher input and financing costs,” the ratings agency wrote.

At 12%, Philippine banks have a relatively lower share of riskier unsecured consumer loans and small business loans compared to nearby countries. Philippines' low household leverage of 10% of GDP also mitigates risk, S&P said.

Earnings have peaked in 2023
Net interest margins are expected to decline as the local policy rate normalizes. This means that earnings have peaked in 2023, at 1.5%.

In the long-term, return on average assets will normalize to 1.2% to 1.4%.