Banks’ profitability seen to improve in coming year

The country’s banks are expected to post higher profits in the coming year and a half, thanks to the availability of cheap cash that would allow the sustained expansion of lending, further supported by the stable economic environment.

Moody’s Investor Service, a rating firm, said the “positive” outlook for the local banking sector was in line with its own forecast for the country’s sovereign debt rating, which has been in line for an upgrade for more than a year.

“Ample domestic liquidity conditions have also strengthened the banks’ funding and liquidity profiles, and we expect profitability levels to gradually improve,” Moody’s assistant vice president Alka Anbarasu said in a report at the weekend.

The local banking sector has been long seen as a source of strength for the domestic economy. Moody’s-rated banks account for about 65 percent of the financial system.

In its report, the rating firm said the environment local banks were operating in would help ensure bad loans stayed low. The industry also has enough capital to serve as a strong-enough buffer that would allow banks to survive “downward pressures.”

Moody’s points out that the Philippines is the only banking system of the close to 70 that Moody’s rates globally, which carries a positive outlook. This year is the third in a row since December 2012 that Moody’s has maintained a positive outlook for the Philippine banking system.

Profitability levels should recover in 2015, as interest rates rise, the rating firm said. In addition, the greater exposure of the banks to higher yielding small- and medium-sized enterprises and retail loans would alleviate pressure on net interest margins.

Latest data from the Bangko Sentral ng Pilipinas (BSP) reported that universal and commercial banks posted a combined profit of P86.54 billion in the nine months ending September, lower by 24.3 percent year-on-year. Paolo G. Montecillo