Bank profit growth is expected to slow in 2015 after surging for four consecutive years given tighter financing conditions and regulatory changes that force lenders to be more cautious.
International debt watcher Fitch Ratings said Philippine banks would stay healthy, but warned against risks stemming from overseas and the chance of rising levels of bad loans.
Credit ratings of three mid-sized Philippine banks were kept steady at a notch below “investment grade,” with a stable rating. These were China Bank, Security Bank and Rizal Commercial Banking Corp. (RCBC). Fitch rates Philippine sovereign debt at “BBB-,” the firm’s minimum investment grade.
“Their financial profiles will likely remain steady over the near to medium term in light of sustained economic growth, a fairly conservative regulatory environment, and sufficient funding and liquidity in the system that is supported by strong inflows from overseas workers,” Fitch said in a statement.
Fitch said the three banks were expected to continue expanding their branch networks to support deposit and loan growth and they might undertake acquisitions to enhance their franchises and market positions. Loan growth will likely stem from infrastructure and power projects as well as small to medium business segments, which give higher returns.
The entire banking system’s loan growth, Fitch said, would slow this year after averaging 17 percent from 2011 to 2014. Slower global growth, rising interest rates and the risk of weaker-than-expected expansion in China would temper demand for credit, the firm said.
“Regulatory changes announced in 2014 aimed at strengthening the banks’ underwriting practices and cooling down the real estate sector” might also make banks more prudent in extending loans, it said.
Among the mid-sized Philippine banks rated by Fitch, Security Bank was deemed the “strongest,” given its lower concentration in large loans relative to capital, smaller exposure to consumer loans and bigger securities portfolio that is mainly in Philippine government bonds.
However, Fitch said Security Bank’s recent aggressiveness in the high-risk consumer market might “diminish” the banking’s relative strength.
China Bank’s consolidated asset quality deteriorated after it acquired Planters Development Bank in 2014. Its reported NPL ratio rose to 2.5 percent in end-March 2015 from 2 percent in end-2013 “and there may be further deterioration emanating from the assets of the newly acquired bank.”