S&P: Philippine banks may continue to ride high

Standard & Poor’s said the Philippine banking sector may continue to enjoy the perks that accompany a growing economy and is expected to remain resilient, fending off external shocks.

In its latest report on the Philippines, S&P said bank loans would continue to grow by a double-digit pace in 2013 due to rising resources and banks’ low exposure to bad debts.

S&P projects bank loans in the country to grow by 10.1 percent this year from the estimated 10.7 percent last year.

The credit watchdog said significant increase in credit could have increased banks’ exposure to default risks, but added that such risks are not material at the moment.

“The Philippines’ healthy pace of economic growth has benefited the country’s banking sector. A buoyant GDP has fueled the growth in bank loans and led to improvements in asset quality,” S&P said in a report titled “Philippine Banking Outlook 2013: A Buoyant Economy Spurs Financial Strengthening.”

“Downside rating pressure [may] arise if a sharp and prolonged economic slowdown leads to an increase in borrower defaults and credit costs. Nevertheless, this is unlikely in our base case,” S&P added.

The credit rating firm said it is keeping its “stable” outlook on the Philippine banking sector, which means that there are no pressing factors that can warrant either an upgrade or downgrade in the credit rating of banks.

On one hand, S&P said, the Philippine banking sector is unlikely to suffer from dampened earnings due to the challenging global economic environment. It said brisk business activities domestically would help counter the impact of a weak external environment.

On the other hand, it added, the same external challenge could make it difficult for banks to post a significantly faster growth in profitability. Therefore, S&P said, a “stable” outlook is appropriate.

Also, S&P said the implementation in the Philippines of stricter capitalizations requirements for banks—as laid out under Basel 3—will not be a problem for industry members.

By 2014, the Bangko Sentral ng Pilipinas will impose a capital buffer requirement of 2.5 percent, which will be on top of the current 10 percent capital adequacy ratio (CAR) requirement. Moreover, banks will be required to have more than half of their CAR to be composed of high-quality capital, or Tier-1, that includes retained earnings and equity shares.—Michelle V. Remo