Banks in the Philippines are well-positioned to make the most of strong economic growth in the country in 2024.

This is according to S&P Global Ratings, whose credit analyst Nikita Anand said: "We believe improving macroeconomic conditions will offer good growth opportunities along with stable asset quality."

She said the banking sector's metrics in the country are set to remain comparatively healthy during a time when real GDP growth is among the highest in the region, The Philippine Star reports.

S&P predicts the Philippine economy will grow by around 6% for 2024 and 2025, compared to last year's growth of 5.2%. 

"We believe policy rates could decrease in 2024 as inflation stays moderate," the rating agency stated.

S&P believes bank earnings will likely normalise with lower asset yields, considering its forecast for policy rate cuts in the second half of the year.

In addition, the rating agency predicts credit demand will increase this year to within a range of between 10% and 12% from the muted growth in 2023 of 5% to 6%.

"Higher economic growth, along with lower inflation and interest rates, will support credit demand," S&P stated.

The agency added that the sector's return on average assets may normalise to reach a long-term average of 1.2% to 1.3% over the coming two years after hitting a peak of around 1.4% last year.

"This is because net interest margins will decline in line with policy rate normalisation. Lower operating expenses and an increasing share of unsecured retail loans could provide an upside to our profitability forecast," S&P said.

In addition, the agency forecasts credit losses will remain relatively flat at between 0.5% and 0.7% of gross loans this year. It said there would be a manageable deterioration in the nonperforming loan (NPL) ratio of Philippine banks to 3.5% from 3.4% as of the end of November last year. This is due to swift growth in credit card loans and other unsecured consumer loans over the past two years.

"As this portfolio matures, consumer NPLs are likely to rise. Risks should stay contained, given the Philippines' low household leverage of 10% of GDP and stable employment conditions," Anand continued.