Outlook on Philippine banks stable – Moody’s

MANILA, Philippines - Moody’s Investors Service has given Philippine banks a stable outlook for the next 12 to 18 months on the back of the country’s robust economic growth.

Simon Chen, vice president and senior analyst at Moody’s, said the Philippine banking system is expected to benefit from the country’s continued economic expansion amid external shocks.

“We expect the credit profiles of the Philippine banks to remain stable over the next 12 to18 months, supported by steady domestic economic growth, stable asset quality, and strong funding and liquidity profiles,” Chen said.

Chen said Moody’s expects the economy to maintain growth at 5.7 percent this year and six percent next year.

According to Moody’s credit expansion of Philippine banks are expected to remain brisk at 14 to 16 percent over the next 12 to 18 months from 19 percent last year despite the cooling measures adopted by the Bangko Sentral ng Pilipinas (BSP).

Moody’s, likewise said, the 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 under-penetrated sectors without experiencing 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.

Furthermore, it said higher lending to underserved segments would help widen net interest margins while banks’ total lending to the competitive corporate segment would decrease.

The rating agency said Philippine banks’ funding and liquidity remain key credit strengths.

 “Deposit growth has broadly kept pace with relatively fast loan growth owing to robust remittance inflows from overseas Filipinos and healthy corporate earnings, including business process outsourcing receipts,” Moody’s said.

It reported the system-wide loan-to-deposit ratio remained low at 63 percent as of end September. 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 future in line with global trends,” it said.