Driven by healthy investor confidence, Philippine banks saw profits rise by 18.5 percent in 2013, its fastest pace in three years, the
However, it warned that while there is little sign of a housing bubble in
According to the EIU, banks' interest income (accounting for about 60 percent of total income) increased by 10.9 percent in 2013, as growth in lending quickened to 15.7 percent from 12.8 percent in 2012.
The think tank expects the rapid pace of domestic credit expansion to continue through 2014 and 2015, averaging 19.7 percent a year.
"The central bank maintains that current rates of domestic credit growth are in line with GDP [gross domestic product] growth and that--so far--inflation remains in check, although it is expected to pick up in 2014 compared with 2013," the EIU said.
Remittances and credit default
It noted that a fall in workers' remittances, which fund much of the country's investment activity in the property sector, would see an increase in mortgage defaults.
"Often prefunded by overseas Filipino workers, defaults on housing loans could increase if remittances decline," it said.
Nevertheless, the EIU said that with high rates of capitalization,
Banks BB rating retained
Meanwhile, the EIU kept the country's banking sector risk rating at BB, citing the industry's low loan/deposit ratio and bad loans ratio, but said these positive factors can be offset by stiffer competition and low commercial loans.
The think tank noted that the banking sector's loan/deposit ratio is among the lowest in
The EIU also noted that the proportion of non-performing loans at universal and commercial banks fell to the equivalent of 2.2 percent of the total loan portfolio in
Tougher regional competition ahead
However, it foresees a struggling Philippine banking sector once the
"As the economies of the
It noted that low consumer loans by universal and commercial banks, which stood at just 11.6 percent of their total loan portfolio at endDecember 2013, barely changed from 12.1 percent a year earlier.
"This partly reflects the fact that households are net savers, owing to uncertainty about the sustainability of the remittance inflows that they receive from Filipinos overseas," it said.
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