Digital banks face asset quality risks

AMID GROWTH OPPORTUNITIES

- By KEISHA TA-ASAN

As Philippine digital banks aim to capitalize on the country's large underserved population, risks associated with lending to the unbanked and underbanked segments are proving to be a substantial challenge, Fitch Ratings said.

In a report, the debt watcher said that the Philippines, just like other markets in the Asia Pacific region, has lower credit and bank penetration than developed markets.

Digital lenders can then focus on growing their loan books and optimize their balance sheets by targeting individuals with limited or no credit histories.

"However, we believe that the potential pool of bankable customers may be constrained by their significantly lower income and/or very limited credit or payment history that make it challenging for banks to price loans adequately," Fitch Ratings said. The report revealed that the non-performing loan ratio for Philippine digital banks worsened to 14.1 percent in July 2024 from 5.9 percent in December 2022.