International debt watcher Fitch Ratings’ outlook on Philippine banks remains rosy even as 2016 is seen as a more challenging year for the banking industry across Asia-Pacific.
“Banking sectors within the Asia-Pacific region are likely to face a more challenging year ahead as financial systems adjust to slowing growth in China and the prospect of higher US interest rates,” Fitch said in a statement.
“We have a higher proportion of banking systems on negative sector outlooks for 2016 than was the case in 2015. This is driven by the prospect of deteriorating asset quality, a more cautious risk appetite from most banks contributing to weaker credit growth, and margin pressures—all of which are likely to lead to slower profit growth. Fitch views lower credit growth as a positive development from the perspective of financial sector stability,” it added.
But as far as the outlook on ratings is concerned, only the Philippines was rated “positive” by Fitch while the majority had “stable” outlooks.
“The Philippines is the only Asia-Pacific banking market where Fitch has a positive rating outlook for 2016. The ratings outlooks on two state-owned banks, Development Bank of the Philippines and Land Bank of the Philippines, were revised to ‘positive’ from ‘stable’ following similar action on the sovereign ratings in 2015. The ‘positive’ outlook on BDO Unibank Inc. reflects its improving profitability and asset quality,” it explained.
Fitch attributed its above-par outlook on Philippine banks to “generally high capitalization, healthy funding and liquidity, and satisfactory loan-loss reserves,” which it said helped balance risks from relatively high credit growth during the past few years.
“The ratings also reflect concentrated loan books, developing corporate governance standards and ownership by large family-controlled conglomerates,” it added.
With the Philippine economy is expected by Fitch to further expand by 5.9 percent next year from its forecast 5.6-percent growth this year, the debt watcher said it believed the country “will remain attractive to foreign bank entrants in this environment, and banking sector competition will stay keen overall.”