BANKS in the Philippines and Southeast Asia could face pressure from growing asset quality risks due to higher interest rates, Fitch Ratings said.
Fitch said in a report dated Jan. 17 that it expects asset quality across banking systems in the Association of Southeast Asian Nations region, including the Philippines, to weaken amid the policy tightening of central banks.
The Bangko Sentral ng Pilipinas raised rates by a total of 350 basis points last year to tame inflation and slow the peso’s decline. This brought the policy rate to a 14-year high of 5.5%. “We expect further, albeit mostly milder, rate hikes in all ASEAN markets in 2023. The Philippines is likely to remain a regional outlier in terms of the scale of its rate hikes, reflecting greater inflationary pressure in that economy compared with markets like Indonesia, Malaysia and Thailand. The impact of tightening could be more severe in banking systems where leverage has increased sharply in recent years,” it said.
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