PH banks among ‘most resilient,’ says Moody’s

Philippine banks would be among the most resilient from shocks caused by loan exposure to commodity-related industries such as oil, given local lenders’ low lending activity to such sectors.

In a report titled “Commodity Exposure Will Add to Asset Quality and Profitability Pressure” released Monday, debt watcher Moody’s Investors Service said that in general, “banks in Asia-Pacific show moderate loan exposure to borrowers in commodity-related industries,” with such loans accounting for an average of only about 7 percent of gross loans.

“We expect that the quality of some of this exposure will continue to deteriorate, based on our assessment that energy and most other commodity prices will remain lower for longer. Such price dynamics will further dampen corporate earnings and weaken the debt repayment capacity of many commodity firms, creating pressure on or delaying the recovery of asset quality and profitability of banks in the region,” Moody’s said.

Moody’s sees bad loans continuously increasing in oil and gas-related industries amid cheaper global oil prices, as well as metals and mining sectors, which have been “under pressure for many years and some Asia-Pacific banks have large legacy problem loans in this industry.”

The debt watcher nonetheless pointed out that most banks in the Asia-Pacific region have buffers against rising commodity risks.

“In most Asia-Pacific markets, we do not expect negative bank rating actions related to commodity exposures, because the banks in general have either good financial buffers, moderate commodity exposures, or their ratings capture asset quality weakness,” Moody’s said.

According to the report, Philippine banks, alongside those in Australia, Hong Kong and Taiwan were “less exposed” to the commodity sectors than their peers in the region.

Moody’s said that across Asia-Pacific, banks in Mongolia were the most vulnerable to low commodity prices “because of their outsized exposure to the vulnerable mining industry; a key contributor to the 14.4 percent of nonperforming loans and overdue loans at end-2015.”

“Banks in Singapore, South Korea, Indonesia and India are also exposed to the more vulnerable parts of the energy/commodity sectors such as oil services, shipping and shipbuilders, offshore marine, metals and coal. This exposure will lead to further asset quality and profitability pressure for the banks in these countries or, like in the case of India, to the delayed recovery of large legacy problem loans,” it added.

On the other hand, “the least affected will be banks in Hong Kong, Australia, Taiwan and the Philippines, because of either the banks’ low exposure to the energy/commodity sectors, the low reliance of these economies on commodities exports, or both,” Moody’s said.