MANILA - Philippine banks' recovery and growth are seen to be "tempered" until next year given the lingering effects of the pandemic on the economy, an analyst at Fitch Ratings told ANC's Market Edge.
Tamma Febrian of Fitch Ratings said the standalone credit profiles of local banks is expected to remain unchanged, with elevated credit loss provisions until at least the first half of 2021.
"Even if we expect recovery next year, economic conditions will not return to pre-pandemic levels. We think that the scars from the pandemic and its lingering effects to the economy will continue to affect the banking system," Febrian said.
But once economic conditions stabilize and the government shows more support for banks and demonstrates good management of COVID cases, Febrian said local banks' performance "will return to pre-pandemic levels" as they are "very hungry for growth".
Fitch Ratings' credit outlook for local banks was fairly stable, with BBB- rating for major banks BDO, BPI and Metrobank, BB rating for PNB, and a downgrade to BB- from BB+ for ChinaBank.
Febrian noted that while the "lower for longer" interest rate stance of the Philippine central bank may lower the cost of funding for banks in the short term, this could present risks to margins over the long run, as rising asset yields will need to catch up.
"Lower interest rates will eventually trigger a lot of banks trying to go down the risk curve -- by going to high risk and higher yielding consumer and MSME segments. While a lot of banks try to tackle this segment, we think right now, there is a greater pressure for them to grow into these segments given that low interest rates will continue to stay," he said.
Last week, the Bangko Sentral ng Pilipinas made a surprise 25 basis points policy rate cut bringing key rates to a historic low of 2 percent, in a move meant to revive the economy amid the series of typhoons and a resurgence in global coronavirus cases.