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Consumer loan defaults increase the strain on PH banks.

According to a survey by Fitch Ratings, non-performing loans (NPLs) made to small businesses are burdening Philippine banks more than NPLs made to large businesses.

Fitch Ratings stated that the net revenue impact of the rate hikes on domestic banks is “mildly beneficial” and that the asset quality impact is “moderate” in research assessing the impact of interest rate hikes in Asia Pacific banks, which was released on Tuesday.

According to the report, consumer loan defaults were to blame for the greatest increase in NPLs among South East Asian banks during the past two years.

According to the research, abandoning pandemic-related initiatives to protect the banking sector from the pandemic’s effects also contributed to the surge in NPLs.

According to the statement, “We believe there are persistent impairment risks among consumer and SME borrowers whose finances have not yet recovered from 2020’s significant shock.”

According to the report, both domestically and internationally, the rate of inflation is now accelerating, which has a negative impact on the peso.

Due in part to the highest oil prices on the global market, the inflation rate jumped to 6.1 percent in June.

Up to 2023, Fitch Ratings predicts that inflation would typically be higher than the government’s goal range of 2 to 4 percent.

It said that for this reason, it expects the key policy rates of the Bangko Sentral ng Pilipinas (BSP) to end 2023 at 4%, up from the present overnight reverse repurchase (RRP) rate of 3.25 percent.

The debt rater stated that the domestic banking system has “a strong ability to manage deposit cost” since it is primarily supported by rate-insensitive current account and savings account (CASA) deposits.

It stated that traditionally, “Changes in the policy reverse repo (repurchase) rate have not been fully carried through to bank lending rates.”

The BSP has raised its policy rates a total of 125 basis points so far.

According to the research, “the economic environment is dominated by conglomerates, giving firms significant bargaining power, and competition for high-quality assets frequently makes banks reluctant to hike rates quickly.”

Therefore, it continued, “we anticipate a modest increase in loan spreads.”

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