Fitch: PH banks to benefit from slow easing cycle

Philippine banks are expected to be among the gainers in Southeast Asia if interest rates go down at a slower pace, Fitch Ratings said, citing the country’s “liquid” banking system and big lenders’ “good funding profiles” that can support loan growth.

In a commentary on Monday, Fitch said Philippine and Singapore banks would be key beneficiaries if rates are “higher than we expected.”

“Our rated banks in these markets have good funding profiles and are in liquid banking systems that can capitalize on yields staying buoyant while keeping deposit rates lean,” the debt watcher said.

“This should position them to enjoy modestly higher net interest margins (NIM) than in our base case, under this scenario,” it added.

Trump tariffs

As it is, US President Donald Trump’s tariff hikes were widely expected to create inflation risks stateside, which might prompt the US Federal Reserve to deliver fewer rate cuts.

A shallower easing cycle in the United States could affect the rate cuts of other central banks to avoid too much currency weakness against a rallying US dollar.

That includes the Bangko Sentral ng Pilipinas (BSP). Earlier, BSP Governor Eli Remolona Jr. admitted that his previous signal of a total 100-basis point (bp) cut this year now appears “too much.”

Funding mix

According to Fitch, Southeast Asian banks’ capacity to cut deposit rates and manage wholesale funding costs will be key in determining outcomes.

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“This capacity tends, in turn, to reflect the strength of their deposit franchise and the diversity of their funding mix,” it explained.

Elsewhere in the region, the debt watcher said Malaysian banks could face episodic deposit competition and narrower net interest margins (NIMs) if policy rates won’t go down as fast as expected. But Fitch said the effect would most likely be less marked than in Vietnam or Indonesia.

“We believe the impact on southeast Asian banks’ asset quality from a shallower rate-cutting cycle or slight rate increases would mostly be limited, although Vietnamese borrowers tend to have weaker buffers than others in the region,” Fitch said.