Fitch sees Philippine bank earnings stable next year

MANILA, Philippines - Fitch Ratings sees earnings of Philippine banks broadly steady next year on the back of the country’s improving economic growth.

In a report, Fitch said the Philippines, India, Sri Lanka, and Vietnam have stable outlook on the banking sector among emerging markets.

The debt watcher said the number of countries with negative banking sector outlooks has risen to cover China, Indonesia, Malaysia, Mongolia, and Thailand due to economic headwinds from China, weak commodity prices and related currency pressures as well as a combination of asset quality or capital issues as lending growth slows.

For the Philippines, Fitch said profitability should remain broadly stable in 2016.

“A continued shift towards higher-yielding consumer and middle-market loans should partly offset sustained competitive pressure on net interest margin. These segments are typically riskier than corporate loans, but credit costs are likely to remain low in a favorable economy,” it said.

It added the interest rate hike in the US would pull down large trading gains of Philippine banks.

“Prospects for large trading gains are dim as US interest rates normalize, but higher domestic policy rates – if they move in tandem – could help to relieve downward pressure on net interest market,” Fitch said.

According to the rating agency, big banks in the Philippines are expected to maintain high core capitalization next year.

“More demanding capital requirements for domestic systemically important banks will be phased in from 2017, and are likely to apply to all Fitch-rated banks to some degree – as they are each among the 10 largest banks in the Philippines.

It pointed out the Bangko Sentral ng Pilipinas (BSP) is imposing a higher minimum Common Equity Tier 1 (CET1) ratio of at least 10 percent to 11 percent by 2019 form the current level of 8.5 percent.