Unsecured lending pushes Philippine banks’ retail lending growth

Salary-backed general consumption loans jumped 68.8%.

A robust economy and low retail lending penetration has pushed Philippine banks to see strong growth in their consumer lending businesses, reports Fitch Ratings.

Household consumer lending accelerated strongly through 2022, growing 25.7% year-on-year in February.

Riskier unsecured lending categories such as credit cards and salary-backed general consumption loans grew 29.4% and 68.8%, respectively, Fitch found. 

However, residential mortgage lending decelerated compared to 2022, amidst higher interest rates.

This partly reflects a release of pent-up demand after the Covid-19 pandemic, as well as strong fundamental demand from a growing population with rising incomes, Fitch said.

“Some households may also be leveraging up to offset the effects of high inflation on the cost of living, potentially stretching their repayment capabilities. Banks' appetites to take on greater risk exposure have also increased amid robust economic growth, to boost profitability after facing headwinds in recent years,” the ratings agency said.

The share of unsecured consumer loans rose to 7% in December 2022, compared to 5% in 2017. Fitch expects this share to continue to rise gradually over the next five to six years.

Fitch warned that the growing share of consumer lending could add to systemic risks. Consumer loans are reportedly more inherently vulnerable to asset-quality problems in the event of economic downturns, as consumers have thinner financial buffers than large corporate borrowers.