Global debt watcher Moody’s Investors Service maintained its stable outlook for Philippine banks, saying the potential rate cut in the second half could support domestic growth.
Moody’s said the solid economic growth and the potential for rate cuts in the second half of 2024 would support economic recovery and limit asset quality stress.
It said the gradual easing of interest rate in the second half of the year would give further impetus to the economy. “Banks’ profitability will remain broadly stable as banks’ higher cost of funds will limit further net interest margin [NIM] expansion in H1, and with only gradual relief in H2 2024,” Moody’s said.
Moody’s also noted that the expansion by some banks into the retail and small and medium enterprise (SME) segments would increase returns, but potentially also provisioning costs.
“Banks’ loan loss coverage and capitalization will remain strong, with internal capital generation keeping pace with loan growth. Funding and liquidity in the banking system will remain robust,” it said.
Moody’s expects the Philippines’ gross domestic product to expand by 5.9 percent in 2024 and 6 percent in 2025.
“Despite battling high inflation, the Philippines remains one of the fastest growing economies in Asia. Strong domestic consumption underpins growth and this insulates against the impact of subdued growth of large global economies. We expect inflation to ease in H2 2024,” It said,
Meanwhile, Finance Secretary Ralph Recto said the Japan Credit Rating Agency’s (JCR) latest affirmation of the Philippines’ investment-grade credit rating of “A-” with a stable outlook is a strong vote of confidence in President Ferdinand Marcos, Jr.’s sound economic policies and a big win for ordinary Filipinos as it translates to more accessible financing for the government’s development programs.
“This latest development is highly encouraging and shows that the fiscal and economic policies pursued by the Marcos, Jr. administration are on track to achieve a growth-enhancing fiscal consolidation,” Recto said.
“Having a high credit rating is a major win for all as this means that the Philippines can have more access to cheaper financing from our development partners and the international capital markets,” he said.
A high credit rating reflects the Philippines’ creditworthiness, sending a signal of confidence to investors and creditors, resulting in lower interest rates and better returns for Philippine bonds.
“This allows the government to channel funds that would have otherwise been allotted for interest payments towards more development programs such as more infrastructure projects, improved social services, better health care system, and quality education,” Recto said.
“It also attracts more foreign direct investments into the country, which will create better employment opportunities for Filipinos,” he said.
JCR’s recent reaffirmation of the Philippines’ credit rating allowed the country to maintain its high investment-grade status across all major regional and international debt rating agencies.