Moody’s: PH banks ‘stable’ for next 12-18 months

MANILA, Philippines – Credit rating agency Moody’s Investor Service has given Philippine banks a “stable” outlook for the next 12 to 18 months.

Based on Moody’s annual “Banking System Outlook: Philippines – Resilience of Domestic Economy Drives Stable Outlook,” the credit expansion of Philippine banks are expected to remain brisk at 14% to 16% over the next 12 to 18 months, from 19% last year, despite the cooling measures adopted by the Bangko Sentral ng Pilipinas (BSP).

Simon Chen, vice president and senior analyst at Moody’s, said the Philippine banking system is expected to benefit from the country’s steady domestic economic growth, stable asset quality, and strong funding and liquidity profiles.
 
The outlook for the Philippine banks was raised to positive in 2012. After which, most of the banks’ ratings were upgraded.

Moody’s-rated banks include BDO Unibank Incorporated, Metropolitan Bank & Trust Company, Bank of the Philippine Islands, Philippine National Bank, and United Coconut Planters Bank.

Chen pointed out that Moody’s expects the Philippine economy to maintain growth despite headwinds buffeting global emerging markets, with the gross domestic product (GDP) expanding by 5.7% this year and 6% next year.

Cushion

Chen said re-accelerating government spending, ongoing infrastructure projects, robust private consumption, strong remittance inflows, and an expanding business process outsourcing sector would cushion against China’s economic slowdown and weaker merchandise trade.

The debt watcher likewise said increases in property prices remain in line with per capita GDP growth.
 
Chen said the Philippines could support a relatively fast pace of loan growth in underpenetrated sectors without excessive asset risks.
 
Moody’s added the asset quality of Philippine banks would remain stable despite the slight increase in credit costs, as financial institutions raise their lending to high-yielding segments.

It added that higher lending to underserved segments would help widen net interest margins, while banks’ total lending to the competitive corporate segment would decrease.

Strengths

Moody’s said Philippine banks’ funding and liquidity remain key credit strengths.

It reported that system-wide loan-to-deposit ratio remained low at 63% as of end September this year. Given ample deposits, the banks’ reliance on confidence-sensitive market funding is low.

Moody’s also expects government support for the banking system to flow through only in circumstances where there are contagion risks and only to the systemically important banks.
 
“We do not expect the Philippines to adopt a bank resolution regime that includes bail in mechanisms for unsecured creditors during outlook horizon, although Philippine regulators may consider doing so in the future in line with global trends,” it said.
 
It said the Philippine government has been proactive in implementing strict capital and liquidity requirements and in encouraging smaller banks to consolidate.
 
Chen said the strong capital levels of banks are likely to decline slightly as they continue to grow their assets to tap demand from segments that had lacked access to credit, particularly the high-yielding consumer segment. – Rappler.com

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