THE PHILIPPINE banking system’s credit profile will likely remain stable on the back of the country’s strong macroeconomic fundamentals, Fitch Ratings said.

“Fitch Ratings believes the Philippines’ resilient medium-term economic potential and favorable banking business prospects reinforce banks’ standalone credit profiles,” it said in a peer credit analysis on Wednesday.

Earlier this month, the credit rater hiked the country’s banking sector operating environment score to “bbb-” from “bb+.” 

All rated Philippine banks’ viability ratings (VR) were also revised one notch higher this month.

“This considers the country’s strong growth prospects, with Fitch forecasting GDP (gross domestic product) growth of 6% over the next two years, which should underpin banking business volume and keep impairment risks at bay,” it said.

The government is targeting GDP to grow by 6-8% this year until 2028.

“Rising geopolitical tensions and greater trade protectionism pose downside risk to the Philippines’ growth momentum, but we believe it is relatively insulated and more resilient than many of its export-oriented regional peers, given its lower reliance on merchandise exports.”

The recent VR upgrade also “reflects steady improvement in the private banks’ profitability and asset quality since the trough of the COVID-19 (coronavirus disease 2019) pandemic,” Fitch said.

“Rising capital buffers at the state-owned banks support their credit profiles, and we expect this to continue over the next 12-18 months, helped by enhanced internal capital generation.”

The net earnings of the Philippine banking industry rose by 9.76% year on year to P391.28 billion in 2024.

Fitch raised the VR of BDO Unibank, Inc., Bank of the Philippine Islands, and Metropolitan Bank & Trust Company by one notch to “bbb-” from “bb+.”

“The three privately owned banks have better standalone credit profiles than their state-owned counterparts, largely due to more established franchises and better underwriting standards,” Fitch Ratings said.

“These factors will continue to help the banks maintain their industry-leading profitability and loan quality even as they continue to broaden their retail customer base,” it added.

Meanwhile, the VR of Land Bank of the Philippines was also raised to “bb+” from “bb,” while the VR of the Development Bank of the Philippines was upgraded to “bb” from “bb-.”

The state lenders’ ratings are “underpinned by their unique access to stable public-sector deposits.”

“These strengths are counterbalanced by risks associated with a larger share of policy-related lending, which have weighed on profitability and loan quality in recent years. It also factors in the banks’ lower capitalization,” Fitch said.

Meanwhile, Fitch Ratings said that the banking sector will benefit from cautiousness by the central bank in further policy easing.

“We expect Bangko Sentral ng Pilipinas (BSP) to be cautious in embarking on further rate easing due to uncertainty over the trajectory of global trade policy.”

“This should bode well for the banking sector’s net interest margin as corporate lending yields remain steady, while robust growth in higher-yielding retail lending should also aid margins.”

The BSP’s latest cut in reserve requirements will also provide support to the sector, it added.

“We project system loan growth to remain brisk at around 12%-13% in 2025 and do not anticipate the slower pace of policy rate cuts to reduce loan demand significantly,” Fitch said. 

“This is because demand for retail loans tends to be less sensitive to policy rate movements and corporate loan demand is often driven more by the predictability of interest rates than by absolute rate levels,” it added.

Bank lending jumped by 12.8% to P13.02 trillion in January, its fastest pace in over two years.

Fitch said economic growth and the government’s focus on infrastructure investments should also support corporate credit demand. — Luisa Maria Jacinta C. Jocson