Delayed BSP rate cuts benefiting banks

Delayed BSP rate cuts benefiting banks

As stock market investors await rate cuts by the Bangko Sentral ng Pilipinas (BSP), banks are generating better interest earnings.

Credit watcher Fitch Ratings said in recent report that the delay in the BSP’s policy rate cuts are actually benefiting banks.

“We expect banks to be able to preserve their record-high net interest margins (NIM) for longer due to a delay in policy rate cuts,” Fitch Ratings said.

“This, coupled with a sustained rise in higher-yielding consumer lending and rollout of key infrastructure projects, is likely to buoy banks’ revenue prospects for the rest of 2024,” it added.

To recall, the BSP has kept the policy rate setting at 6.5 percent with the latest hike made in October last year, as inflation started to rise from the third quarter of 2022 before peaking at 8.7 percent in January 2023. This year’s highest inflation rate was in May, or 3.9 percent.

The BSP wants to see inflation settling at the mid or lower end of the government’s 2 to 4 percent inflation rate for this year before reducing policy rates.

However, even with the current high policy rates set by the BSP, Fitch Ratings said that loan growth and business activity will be sustained this year, as credit card demand and unsecured personal loans are less affected by changes in policy rates.

"Higher interest rates should help the banks maintain asset yields for most of the second half of 2024," Fitch Ratings said.

Meanwhile, a check of the financial statement of the country’s largest bank, BDO Unibank, showed that its net interest income climbed by almost 25 percent to P186.39 billion last year from P149.23 billion previously, which was driven by a 9-percent expansion in its customer loans.

This enabled BDO to register a net income of P73.4 billion in 2023, or 29-percent higher compared to 2022. BDO’s 2023 net income is a record not only in the banking industry but in the whole of corporate Philippines.

In a research note, Maybank Investment Banking Group (IBG) said that BDO’s loan growth were from credit cards at 26.2 percent and personal loans at 30.9 percent, while its net interest margin expanded by 54 basis points (bps).

Meanwhile, the country’s second-largest bank, BPI under the Ayala Group, also saw its net interest income increase by 22.7 percent to P104.4 billion last year. This was a major factor in BPI’s net income increase of 30.5 percent to P51.7 billion in 2023 from the P39.6 billion in 2022.