THE OUTLOOK for the country’s banking sector this year is “improving,” supported by the trend of economic recovery and loan growth which is seen in Asia-Pacific emerging markets, according to Fitch Ratings.

In its Global Financial Institution Sector Trends sent to reporters on Wednesday, Fitch said Asia-Pacific markets including the Philippines, Hong Kong, Indonesia, Mongolia, and Thailand have an “improving” outlook in 2022.

For emerging markets in the region, Fitch said there will be improved bank financial performance this year “driven by economic and loan growth despite an uneven path to full recovery.”

Fitch in October said it expects the Philippine economy to grow by 6.8% in 2022, slightly higher than its 6.6% projection given in July but still lower than the 7-9% target by the government.

Meanwhile, bank lending has improved in the latter months of last year after recording annual declines from December 2020 to July 2021. Latest Bangko Sentral ng Pilipinas (BSP) data showed outstanding loans of big banks increased 4% year on year in November, marking the fourth consecutive month of annual growth.

On the other hand, Fitch said impaired loans may rise as support measures are gradually removed, although the debt watcher said that most markets have adequate provisioning.

BSP officials expect the industry-wide non-performing loan ratio will peak at 8.2% this year. Latest data showed the bad loan ratio stood at an eight-month low of 4.35% in November.

The credit watcher also warned that financial institutions in emerging Asia-Pacific economies may face risks caused by monetary policy tightening in the United States and the uncertainties from the ongoing pandemic.

The US Federal Reserve earlier said it will quicken the pace of its tapering of asset purchases. Officials also said they expect up to three rate hikes this year as they try to combat elevated inflation.

At home, BSP Governor Benjamin E. Diokno said they will only start raising rates “when prospects for the economy have materially improved.” He said in a Bloomberg interview on Tuesday that they do not expect a rate hike in the first half of 2022.

In July 2021, Fitch revised its rating outlook on six Philippine banks to “negative” to reflect the same outlook downgrade for the country’s “BBB” assessment. This means a rating downgrade in the next 12 to 18 months could be possible. — Luz Wendy T. Noble