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SME and consumer lending: the new battleground in the Philippines

While interest rates remain relatively low, business is booming and so is consumer power. Banks hoping to take advantage of this are shifting their energy to the consumer market.

Philippines banks on consumer boom

Ratings agencies Standard & Poor’s and Fitch earlier this year recognized the work of bank governor Amando Tetangco Jr and the Bangko Sentral ng Pilipinas (the Philippines’ central bank) by upgrading the sovereign to investment grade.

In July, Moody’s also hinted at an upgrade, declaring that Asia’s current darling had exceeded their economic expectations. "We hope that the upgrade will come in around October," says Emilio Neri, economist at the Bank of the Philippine Islands. "Moody’s has taken a much more conservative approach, waiting to see the outcome of the general election in May – with good cause."

Banks in the Philippines are admired globally for their healthy metrics, and even with most banks already achieving Basle III capital requirements or higher, they remain flush with liquidity with stable inflation.

That said, capital constraints are beginning to strain the profit margins of some banks. "Although people say the central bank listens to their issues, I don’t think they will back down on capital requirements even though they know they are much more hefty than anywhere else and some banks are struggling," says a senior executive at a local bank in the Philippines.

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