Philippine Banks Brace for Decline in Net Interest Margins in 2024

Manila, Philippines – A significant shift in the financial landscape is on the horizon for Philippine banks, as Fitch Ratings anticipates a decline in Net Interest Margins (NIMs) in the second half of 2024. This prediction is a part of a broader analysis of ASEAN emerging markets, where varying interest rate dynamics are expected to influence banking profitability differently.

Key Insights on Net Interest Margins
Current NIM Status: As of September this year, the Bangko Sentral ng Pilipinas reported the Philippine banking system’s NIM at 4.12 percent, marking an increase from the 3.51 percent in March 2022. This rise followed a central bank policy rate hike to 6.5 percent, the highest since 2007.

Regional NIM Dynamics: In Thailand, NIMs are expected to widen in line with the local policy rate. Vietnam, benefiting from reduced deposit costs, is also forecasted to see an increase in NIMs. Conversely, Indonesia’s NIMs are set to expand as loan relief programs expire.

Forecast for the Philippines: The Philippines, having experienced significant NIM benefits due to high CASA ratios and major rate hikes, is poised for a downturn in NIMs as domestic policy rates are anticipated to lower in the latter half of 2024.

Malaysian Banking Sector: Malaysia, which saw minimal rate hikes, expects its NIM to stabilize after hitting a low by the end of 2023.

Global Influence and Future Outlook: Fitch’s forecasts take into account the trajectory of policy rates and bank deposit structures. The firm also projects that GDP growth will pick up in 2024, contributing to a modest recovery in loan growth, especially in the Philippines, Thailand, and Vietnam. Additionally, any further tightening by the U.S. Federal Reserve is expected to support NIMs while also heightening asset quality risks.

Implications for Philippine Banks
Philippine banks are likely to face a challenging period of margin compression in 2024. This expected change comes after a period of substantial gains, underscoring the dynamic and responsive nature of the banking sector to both domestic and global economic trends.