Philippine banks' net earnings growth could narrow to 4% in 2017

Blame it on trading gains that are expected to plunge 33%.

Most Philippine banks had positioned for the Fed rate hike this week by lowering the tenors of bond holdings and shortening the durations of loan portfolios. Based on Maybank Kim Eng's conversations with several banks, ~70% of loan books can be re-priced within one year.

"We think lending rates will increase, albeit gradually, potentially boosting interest income on loans. We forecast FY17 sector net interest income to improve 13% YoY from 11% in FY16F, based on our house view of a 25bps rake hike. However, local banks may see lower FY17F trading gains (-33% YoY), narrowing net earnings growth to 4%. We expect the robust domestic economy to support lending in the banking sector, which we project to grow 16.4% next year," the analyst adds.