Fitch bullish on Philippine economy, but flags overheating risk

FILE PHOTO: Workers make denim jeans for export at garment factory in Manila

By Karen Lema

MANILA (Reuters) – The Philippine economy will remain a standout in the region and its banking system will stay sound, but risks that could lead to overheating need to be watched, a director at Fitch Ratings agency said on Wednesday.

The director, Elaine Koh, said strong domestic demand and investment should continue to drive expansion this year in one of Asia’s fastest-growing economies and that should help keep its banks profitable.

“We still see the drivers of economic consumption are strong,” Koh told Reuters in an interview.

“Domestic investment activity continues as well, and this is also driven by initiatives by the current administration in infrastructure spending.”

These same drivers should support the overall operating environment of Philippine lenders, she said.

Fitch affirmed its investment-grade rating with a positive outlook for the Philippines in March, citing its strong and consistent growth performance.

The Philippines is pinning growth plans on higher infrastructure spending to create jobs, stimulate the economy and attract foreign investors put off by high power prices and poor roads and ports that create transport bottlenecks that eat into corporate profits.

It remained one of the fastest-growing economies in the world with gross domestic product rising an annual 6.4 percent in the first quarter, marking 73 quarters of uninterrupted growth.

The government is targeting growth of between 6.5 percent and 7.5 percent this year.

Infrastructure and property loans would spur credit growth, which Koh said, was expected to stay in the “mid-to high teens” this year.

Bank lending grew 19.2 percent in April, slightly slower than the previous month’s 20.2 percent, with the bulk of credit going to real estate, manufacturing and information and communication.

“For now, the pace of credit growth does not seem divergent from underlying economic growth, which continues to be robust,” Koh said.

But while overheating risks appeared to be manageable, Koh said, they “warrant monitoring”.

(Reporting by Karen Lema; Editing by Robert Birsel)