Phl banks to remain strong despite calamities – Moody’s

MANILA, Philippines - Philippine banks would remain relatively strong as the economy continues to show signs of growth despite a series of natural calamities that hit the country recently, Moody’s Investors Service said.

In its latest Global Credit Research authored by Moody’s managing director Stephen Long, it said “Philippine banks are an outlier, with their credit profiles remaining on an improving trend, benefiting from a strong economic outlook, even after recent disasters and the absence of concerns about excessive credit growth.”

Moody’s said its outlook for local banks are still “positive”.

“The Philippines continues to be a positive outlier, with strong economic momentum but only moderate credit expansion compared to nominal GDP growth.”

On liquidity, Moody’s said banks in the Philippine have seen loans outpace deposits, but domestic liquidity remains ample.

On asset quality, it said “while banks in the Philippines now report impaired assets at record lows, we expect no meaningful deterioration despite impact of recent disasters.”

Overall, Moody’s believes that Asia’s banks continue to compare well with those of other regions.

“Most systems in Asia are well capitalized and enjoy a strong profitability buffer, while the assets remain largely funded by domestic deposits, a situation which adds resilience to their liquidity profile,” it said.

“Moody’s expects these strengths to persist in 2014, allowing most systems to remain resilient in our base case scenario, which is characterized by the gradual recovery in global growth,” it added.

According to Moody’s, “This view is reflected in turn in our average deposit ratings in the region, which, despite a slight decline in recent years, are now positioned above those in other emerging market regions, as well as Europe.”

Nonetheless, Moody’s assessment is that credit quality in Asia has generally peaked and that some systems will face increasing asset quality challenges, most notably in three areas: Continued rapid credit expansion remains a key credit issue because rapid lending growth is often a precursor to higher delinquency.

“High, and in some cases still-rising, property prices remain a threat to the credit profile of Asia’s banks,” it said.

Long noted that the potential end to the Federal Reserve’s “quantitative easing program” could be a trigger for a turning point in the credit cycle.

Moody’s further continued to view Asia as lagging the global agenda regarding the adoption of resolution regimes as the region’s authorities remain in no hurry to embrace the concept of statutory bail-ins.