Banks to face asset quality risks

BANKS in the Philippines and Southeast Asia could face pressure from growing asset quality risks due to higher interest rates, Fitch Ratings said.

Fitch said in a report dated Jan. 17 that it expects asset quality across banking systems in the Association of Southeast Asian Nations (ASEAN) region, including the Philippines, to weaken amid the policy tightening of central banks.

“The modest deterioration in ASEAN banking-sector asset quality that we expect over 2023 will largely reflect the lagged effect of rate hikes in 2022. Rates will likely rise further this year in all six key regional banking markets, aggravating the impact,” it said.

“Moreover, if asset-quality deterioration is greater than we expect, it could dampen profit growth or delay the post-pandemic rebuilding of capital buffers that we currently anticipate for some banks, for example, in the Philippines and Vietnam,” Fitch added.

The Bangko Sentral ng Pilipinas (BSP) raised rates by a total of 350 basis points (bps) last year to tame inflation and slow the peso’s decline. This brought the policy rate to a 14-year high of 5.5%.

BSP Governor Felipe M. Medalla last week also said they could hike borrowing costs by 25 or 50 bps at their

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December 2022 inflation recorded its 14-year high at 8.1 percent. Despite the high inflation rate, Concepcion said domestic demand remains robust that support the economy. can see demand coming back, growth coming back,” he added. (PNA)