Fitch: Large PH banks managing credit risks well

A stronger regulatory and operating environment is auguring well for big Philippine banks, according to debt watcher Fitch Ratings.

In its Philippine Large Banks Peer Report Review report issued Friday, Fitch said banking regulation “continues to strengthen, with changes over the past couple of years focused on enhancing risk management and related-party lending frameworks, and measures to forestall excessive real estate risk-taking.”

This helped buoy the ratings of the country’s large banks, including BDO Unibank Inc. which got an investment grade in April, it added.

The debt watcher, however, noted of “gaps in existing rules” following the money laundering issue that was revealed early this year. Fitch is referring to the entry of $81 million in stolen money from Bangladesh’s central bank into the domestic financial system, specifically Yuchengco-led Rizal Commercial Banking Corp. (RCBC).

Fitch nonetheless said “the regulator has shown willingness to address the issues,” referring to the Bangko Sentral ng Pilipinas (BSP).

It also helped that the economy was on a growth trajectory, Fitch said.

“Fitch Ratings expects Philippine economic growth to remain robust despite a softer external environment in the near to medium term. We forecast real GDP (gross domestic product) growth of 6.2 percent in both 2016 and 2017, and expect domestic consumption and fixed capital investment—the two major engines of Philippine economic growth—to stay resilient, backed by sustained remittance flows and supportive post-election consumer and business sentiment,” the debt watcher said.

According to Fitch, the Philippine economy is expected to “remain resilient despite softer external conditions, with robust domestic demand driving brisk mid- to high-teen loan growth over the next one to two years.”

“We expect these factors to propel steady recurring revenue expansion for the three largest banks—Bank of the Philippine Islands, BDO and Metropolitan Bank and Trust Co.,” Fitch said.

The debt watcher said risks to increasing consumer lending remain manageable. The banking industry’s loans for consumer purchases of motor vehicles and real estate as well as credit card use jumped 17.5 percent in 2015 to breach the P1-trillion mark for the first time, latest BSP data showed.

“Higher-yielding middle-market, SME (small and medium enterprise) and consumer loans are likely to rise at a faster rate than overall credit growth, in line with market demand and the banks’ growth strategies. These segments tend to carry higher credit risk than the banks’ traditional, large corporate customer base, but we expect asset quality to remain broadly benign amid supportive domestic conditions in the near term,” Fitch said.