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MANILA – The Philippine banking sector is on the verge of a credit boom, according to Fitch Ratings.
In a statement, the international credit rating firm said private-sector lending is gathering pace, citing the hike to 32 percent of the Philippines’ gross domestic product in 2011, faster than the 3.9 percent increase in GDP itself.
“The pace of real credit growth in 2011 (10.9 percent), and the continued acceleration of nominal credit growth to 18.7 percent year-on-year in March 2012, suggests the Philippines could be in the midst of a nascent credit boom. Such a boom has the potential to be sustained on a multi-year basis, due to the ample onshore liquidity,” Fitch said.
Bank lending grew 14.7 percent to P3.11 trillion last May.
“In the near-term, this could prove highly favorable for the government’s PPP program, as it could limit the need to rely on overseas financing. Over the longer term, however, it is likely to test BSP’s macroeconomic management abilities after so many years of sustained onshore de-leveraging,” Fitch said, referring to the unwinding of bad loans after the Asian financial crisis of 1997/1998.
Over this period of de-leveraging, private sector credit fell from 67 percent of GDP in 1997 to 28.9 percent in 2007. Consequently, loans have dropped from 86.6 percent of deposits in 1998 to 70 percent last year.
The Bangko Sentral ng Pilipinas has said that lending conditions remain adequate for growing the economy, adding that the domestic financial system is awash in liquidity that can be used to fuel the Aquino administration’s Public-Private Partnership Program.
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