The latest BSP survey among banks shows a tightening of loan standards for enterprises due to lower risk tolerance, deterioration of borrowers\u2019 profiles, profitability and stricter financial system regulations. In contrast, credit standards for households (home loans and credit cards) have eased owing to higher profitability, higher risk tolerance and improved economic outlook.<\/p>\n\n\n\n
Nevertheless, banks still expect loan demand to rise this year driven by better macro, higher consumption, and higher working capital requirements among others. Loan growth is forecasted to bounce back this year to +10.7% year-on-year (y-o-y) vs. a lukewarm performance last year (+7% y-o-y growth based on Nov 2023 data). Key growth drivers include slower inflation and potential rate cuts in 2H 2024. We also expect infra spending and the restart of the business capex cycle to spur demand for credit.<\/p>\n\n\n\n
Our View: <\/strong>We remain overweight on the banking sector but we are more selective given the sector\u2019s outperformance over the past 2 years. Our top picks: MBT and BDO.<\/p>\n\n\n\n Recent indications we are getting from a couple of banks are that consumption is Nonetheless, the banks didn\u2019t sound too worried about potential spike up in NPLs. Out of our sector top picks, we would like to highlight MBT as it continues to offer a higher scope for catch-up play despite its recent outperformance (has yet to narrow the valuation gap vs. BPI and BDO). The bank is also the biggest beneficiary of easing rates owing to its relatively larger securities trading book. In terms of loans, we do see MBT outpacing the other BIG 2 this year given larger exposure to auto and credit card markets.<\/p>\n\n\n\n
starting to taper. There are also concerns that the eventual repricing of loans taken up during the pandemic (at lower rates) could become an issue specially given that rates are not expected to start easing until 2H 2024. <\/p>\n\n\n\n