Moody’s assigns ‘stable’ outlook on Philippine banks

Moody’s Investors Service has assigned a “stable” outlook on the Philippine banking sector, saying that banks in the country are expected to benefit from a favorable business environment in the short term.

Banks in the country have an average rating of Ba2, two notches below investment grade, from Moody’s, which said the latest outlook takes into account the adverse impact of a tough global economic climate as well as the positive growth prospects for the Philippine economy.

“[Despite negative effects of external developments], economic growth is still expected to remain positive, as is growth in loan demand, driven by domestic sources comprising both public and private borrowers,” Moody’s said in a recent report on the Philippines.

The sluggish growth of the global economy, driven by the debt and macroeconomic woes of the United States and the Euro zone, is seen to continue hurting the income of export-oriented firms. Confronted with potential appreciation of the peso, these firms may see their debt burdens rising next year, thus affecting their ability to service their bank loans or their appetite for more loans, according to Moody’s.

However, Moody’s said firms not engaged in exports are seen to tap more loans, thereby boosting the banks’ profitability.

The credit-rating agency said loans will also be boosted by demand for financing to support infrastructure projects under the Public-Private Partnership (PPP) program, under which private firms are invited to invest in public infrastructure projects.

Moody’s said banks in the country are generally expected to remain profitable and adequately capitalized with a high level of liquidity.

However, the credit-rating agency said banks may feel pressure on their profit margins brought about by rising price competition.

“We expect banks’ liquidity profiles to remain strong and a supportive factor for their credit fundamentals over the next 12-18 months,” Moody’s said.

Data from the Bangko Sentral ng Pilipinas showed that the combined net profit of banks in the country grew by 28 percent in the first semester to P51.9 billion from P40.6 billion in the same period last year.

The BSP also said that resources of the banking system grew by 11.5 percent to P7 trillion from P6.29 trillion in the comparative period.

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.