Fitch keeps 'stable' outlook for PH banks in 2017

MANILA, Philippines – Fitch Ratings maintained its "stable" rating and sector outlook for Philippine banks, despite a tough year ahead for Association of Southeast Asian Nations (ASEAN) markets as the United States adopts a protectionist stance and China builds up its corporate debt.

"Only the Philippines and Vietnam – where economic prospects are brighter – have stable sector outlooks," the debt watcher said in its 2017 outlook for Asia-Pacific banks.

It was last week when Fitch Ratings gave the Philippine banking system a stable 2017 outlook, with domestic demand expected to remain strong, powered by sustained remittance inflows and business process outsourcing (BPO) revenue.

"Plans by the new administration to accelerate infrastructure spending should also boost growth," Fitch Ratings said, citing the planned capital expenditure of P8.2 trillion to finance the country's "golden age of infrastructure" in the next 6 years.

Weathering the financial storm

Driven by increased spending, the debt watcher forecasted the Philippine economy to grow 6.6% in 2017, one of the highest in Asia.

The Philippine economy grew by 7.1% in the 3rd quarter of 2016.

"Banks in the Philippines and Vietnam face a much more supportive economic environment that should translate into robust loan demand and steady asset quality next year," Fitch said in its report on Tuesday, December 13.

A local economist said the Philippines has the ammunition, in the form of abundant international reserves, to weather the financial storm.

"We're in a much better state to withstand the reversal in capital flows we're seeing now than we were in previous episodes, such as 2009 and 1997," he said.

But most of the ASEAN's banking sectors are expected to face weak loan demand and further pressure on asset quality next year.

Fitch Ratings said it has maintained its "negative" banking sector outlook for Indonesia, Malaysia, and Thailand, and has moved Singapore's to "negative" from "stable" to reflect continued asset-quality risks from oil and gas exposures as well as broader pressures from a slowing economy.

Generally, Fitch Ratings said ASEAN banks are generally well-placed to cope with the difficult credit environment.

"Underwriting standards have mostly been stable and we generally expect a manageable cyclical deterioration even in the more challenged banking markets," the debt watcher added. –