MANILA -- Moody’s Investors Service gave the Philippine banking industry a 'Stable' outlook on the back of a resilient national economy coupled with its strong asset quality.
In a report, the debt rater said the projected 6.0 percent and 6.2 percent growth of the domestic economy in 2019 and 2020, respectively, would make it among the highest in the region.
These projections, it said, are “underpinned by strong domestic consumption and an expansionary fiscal policy despite a budget delay and an export slowdown due to a weakening of global economic growth.”
Impact of the total of 175 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates in 2018, made to address the elevated inflation rate, is not seen to impact on banks’ asset quality “because economic conditions are healthy and financial performance of Philippine corporates remain strong.”
Thus, the credit rater forecasts a 13-15 percent loan growth over the next 12 to 18 months since the BSP has started to cut key rates.
Last May, the BSP’s policy-making Monetary Board (MB) slashed the central bank’s key policy rates by 25 basis points to 4.5 percent for the overnight reverse repurchase (RRP) facility as inflation continues to decelerate.
Rate of price increases, however, posted an uptick to 3.2 percent last May after a six-month decline due to the faster inflation rates of heavily-weighted food and non-alcoholic beverage index and the housing, water, electricity, gas, and other fuels index.
During its rate setting meet on Thursday, the Monetary Board kept the BSP’s key rates steady after noting that inflation outlook remains manageable and domestic growth remains firm.
Moody’s said Philippine banks’ debt burdens have risen in recent years but it discounted a negative impact on the financial institutions since although majority of the loans are extended to corporates, the financial performance of the latter remains good.
“Philippine corporates continue to have sufficient income buffers to fully absorb the impact of higher interest rates or a slowdown in revenue growth,” it said.
The report noted that interest coverage ratio of companies listed with the Philippine Stock Exchange (PSE) has fallen because of the interest rate hikes but the ratio is still high at more than five times as of last year.
It, on the other hand, cited that because bank loans are heavily concentrated on small number of conglomerates, some of which own banks, this “can lead to failure of a major bank along with other business of the group.”
“The likelihood of such an event is low but if it occurred, its impact to the banking system would be significant,” it said.
The report said capitalization of Philippine banks are expected to weaken moderately as loans increase but added that “shareholder support will prevent their capitalization from deteriorating significantly.” (PNA)