HEALTHY BANKS The Philippine banking sector is expected to remain healthy even if the global economy suffers from another round of slowdown in 2012, according to a Fitch Ratings report titled “Philippine Banks’ Ratings Stable despite Global Risks.”
Fitch Ratings said the Philippine banking sector would stay healthy even if the global economy suffered from another round of slowdown in 2012.
Given this expectation, Fitch said the credit ratings of key players in the country’s banking industry were expected to remain stable throughout next year, aided by their growing liquidity.
“Ratings outlook on the major Philippine banks are likely to remain stable, given their ability to withstand a fresh economic slowdown and to preserve their liquidity and satisfactory capitalization,” Fitch said in its latest report titled “Philippine Banks’ Ratings Stable despite Global Risks.”
Fitch said the results of a stress test it performed on Philippine banks showed that key industry players were expected to post an average capital adequacy ratio (CAR) of about 11 percent, which was above the 10 percent required by the BSP, should the banks encounter a hypothetical scenario of a significant number of defaults on their loans.
The average CAR of the banking system is currently at 16 percent.
Fitch also said that under the “stressed scenario,” the lowest CAR could settle at 8 percent, which would be below the BSP requirement but just equal the minimum CAR that international standards considered to be comfortable.
Fitch said banks in the country might see their expenses rising next year as the uncertainties in the global economy push cost of borrowing in the international market.
Nonetheless, the ratings firm said, the rising expenses were expected to remain manageable as far as banks in the country were concerned.
The credit-rating firm said banks in the country, like other financial entities in other economies, would not be immune from the ill-effects of a prolonged debt crisis in the eurozone. The bank said the crisis in the West would somehow affect profitability and asset quality of Philippine banks.
Fitch added that there was a probability, although a small one, that credit ratings of banks in the Philippines might suffer downward pressure if the crisis in the eurozone would significantly worsen. This was because a heightened risk aversion could push cost of borrowings, while an anemic eurozone could lead to further declines in export earnings of countries like the Philippines.
“Nevertheless, Fitch believes this likelihood at present to be low. Moreover, higher credit costs are expected to be manageable for most rated local banks largely due to their reasonable loss-absorption buffer,” the credit-rating firm said.
The outlook of Fitch on the Philippine banking sector is consistent with that of the Bangko Sentral ng Pilipinas, which earlier said banks in the country would remain profitable and adequately capitalized next year.
Documents from the BSP showed that the combined net profit of banks in the country grew 28 percent in the first semester to P51.9 billion from P40.6 billion in the same period last year.
It also showed that resources of the banking system grew 11.5 percent to P7 trillion from P6.29 trillion over the same period last year. This was supported largely by a growing deposit base, which the BSP said indicated continued trust of the public in the country’s banking system.
“Key performance indicators for the first half of 2011 showed the sustained strength of banks’ core balance sheet accounts: steady asset expansion, double-digit credit growth, stable funding base, ample liquidity, continuing improvement in overall asset quality, above-standard solvency ratios and healthy bottom lines,” the BSP said in an earlier report.