A DELAY in policy rate cuts could prolong Philippine banks' record-high interest margins (NIM), Fitch Ratings said on Monday, prompting the debt watcher to revise the banking sector outlook to "improving" from "neutral."
"This, coupled with a sustained rise in higher-yielding consumer lending and rollout of key infrastructure projects, is likely to buoy banks' revenue prospects for the rest of 2024," it added.
The impact of higher for longer interest rates on the sector's asset quality, Fitch continued, will be manageable given an economy that is expected to see growth pick up to 5.8 percent this year.
The Bangko Sentral ng Pilipinas' (BSP) benchmark rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points (bps) of rate hikes beginning May 2022 as inflation started surging.
Monetary authorities have held fire for the last five policy meetings and are expected to again do so when they meet later this month.
Officials have said that rate cuts could start as early as August given improvements in the inflation outlook, but many observers say that the BSP could still wait until after the US Federal Reserve starts easing to minimize the impact on the peso.
"We still expect the BSP to embark on its policy easing cycle this year," Fitch said, "but we believe the gradient of normalization is gentler than we previously forecast."
"Higher interest rates should help the banks maintain asset yields for most of the second half of 2024," it noted.
Continued growth in higher-yield unsecured lending, meanwhile, is expected to lead to slightly better NIM, which Fitch said would reverse from a 7-basis-point contraction to 7-bp growth.
This forecast could improve should the central bank decide to further reduce banks' deposit reserve requirements this year, it added, noting that BSP officials have said that the target ratio would be about 450 bps lower than current levels.
Loan growth and business volumes, meanwhile, were forecast to remain healthy. Fitch noted that system loan growth had risen to 10 percent as of end-April from 8 percent at the end of last year.
The debt watcher raised its 2024 credit growth forecast to 11.5 percent from 9.8 percent.
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