Online stockbroker Colfinancial.com said bank earnings may expand by 11.1 percent this year on higher lending income while net interest margin (NIM) tapers off.
It sees lending income expanding by 8.2 percent.
The projected uptick in bottomline, however, is slower than last year’s expected 22.5 percent.
Colfinancial said bank lending could grow by 11 percent this year, up from an estimated 9.8 percent last year.
“With improved visibility over the economic situation in the country, we think that businesses will have more confidence in pushing through with capex (capital expenditure) plans and ramping up borrowing activities, thus driving a resurgence in corporate loan growth. On the consumer lending side, we are expecting robust growth to continue, driven primarily by cards and auto segments,” the stockbroker said.
This is despite consistent deceleration in the loan growth of universal and commercial banks — down from a peak of 12.9 percent in December 2022 to 7.1 percent in September 2023.
“Loan growth picked up, however, in the third quarter with total universal and commercial bank loans up by 7.5 percent in October and 8.6 percent in November,” it said.
“Weak corporate loan growth was one of the major factors that contributed to the slowdown in lending growth last year as businesses hit pause on their borrowing activities amid uncertainties from elevated inflation, tightening monetary conditions and slowing GDP (gross domestic product),” Colfinancial said.
Colfinancial said banks noted corporate loan books were dominated by working capital loans as opposed to capex loans to fund growth/expansion initiatives throughout 2023.
This year, however, may see firms borrowing to fund capex and borrowings ramping up “activities given the improvement in visibility over the economic situation in the country,” it added.
Inflation is down to 4.3 percent in the fourth quarter of 2023 and is expected to drop further to 3.7 percent in 2024 and 3.2 percent in 2025. The central bank has also paused monetary tightening and is expected to cut rates by at least 50 basis points (bps) in the second half of this year.
“Philippine GDP growth, estimated at 5.3 percent for 2023, is also projected to accelerate to 5.7 percent in 2024 and 6 percent in 2025. On the consumer lending side, we are expecting robust growth to continue, driven primarily by cards and auto segments,” Colfinancial said.
Growth in banks’ NIM, meanwhile, will stay flat for the year at 4.03 percent compared to the expected 4.04 percent last year.
There will be a “slight” expansion of NIM in the first half of the year, as loans continue to reprice and the Bangko Sentral ng Pilipinas’ (BSP) last off-cycle rate hike of 25 bps in October is reflected in loan yields.
Colfinancial said the “deviance in the magnitude and speed of future monetary policy decisions relative to current expectations” will heavily affect how margins turn out.
“For mid-sized banks with lower CASA (current account savings account) deposits in particular, margins may be pressured by increased competition for funding, typical for the first few months of the year. Even if the Fed begins monetary easing in the first half, we think that the BSP will wait until the second half before following suit. Taking these into consideration, we think that banks’ NIMs will remain resilient still in the latter half of the year,” it said.
“There are a few reasons for this, namely, the build-up of investment securities locked in at higher rates, the quicker decline of funding cost in response to rate changes compared to asset yield, and the lag between rate cuts and change in loan yields,” it added.
Colfinancial said banks’ non-performing loans will remain at manageable levels with asset quality stable, as banks continue cutting down on provisions in 2024.
“We are forecasting the median credit cost for the sector to be 61 bps (basis points) this year, down from 68 bps in 2023 and 79 bps in 2022,” it said.
