Debt watchers S&P Global Ratings and Moody’s Investors Service said the Philippine economy would continue to provide sound growth opportunities for Philippine banks.
S&P said the Philippine economy’s strong growth trajectory would drive constructive development outcomes and close infrastructure gaps, while supportive fiscal policies and an improving investment climate would aid growth.
The debt watcher said the trend for economic risks faced by banks operating in the Philippines is stable.
Nikita Anand, credit analyst at S&P, said the increase in the banking system’s nonperforming loans over the past few quarters would continue. “That’s because higher interest rates will increase borrowers’ debt servicing burden. Nevertheless, the increase in nonperforming loans will overall be moderate and manageable for banks due to broadly supportive macroeconomic conditions,” Anand said.
S&P said the industry risk trend is stable as the banks’ well-established domestic franchise would continue to help them to sustain a strong, stable, and diversified customer deposit profile.
“The system’s loan-to-deposit ratio is likely to continue to increase with cuts in the regulatory reserve requirements because banks will likely use the additional liquidity to grow,” Anand said.
S&P upgraded the Philippine banking sector to group ‘5’ under its Banking Industry Country Risk Assessment (BICRA).
Likewise, Moody’s said its 12-18 month outlook on the banking system in the Philippines is stable.
Tengfu Li, analyst at Moody’s, said Philippine banks would continue to benefit from the country’s strong economic growth.
“Over the next 12-18 months, their asset quality will stay broadly stable, capitalization will weaken moderately as loan growth picks up, profitability will remain stable, and domestic liquidity will continue to tighten but stay sufficient for the banks to sustain current growth levels,” Li said.
On asset quality, Moody’s said banks would show strong asset quality despite increases in interest rates, because economic conditions are healthy and the financial performance of Philippine corporates remains strong.
As for capitalization, the banks’ capital consumption will continue to outpace their internal capital generation because of rapid credit growth, but shareholder support will prevent their capitalization from deteriorating significantly.
“Profitability will stay stable, supported by the expansion in net interest margins, and government support will remain strong for large banks,” Li said.