Fitch says Philippine banks in good shape, keeps ‘stable’ outlook

Fitch Ratings has maintained a “stable” outlook on Philippine banks, saying they were likely to remain in relatively good shape even with the lingering uncertainties in the global environment.

A “stable” outlook means that the banks’ existing credit ratings, some of which are the same as that of the national government at a notch below investment grade, are likely to remain the same within the short term.

Fitch said the strong liquidity and capital base of Philippine banks would help them mitigate impact of existing risks from the external front.

“Fitch expects most rated banks to maintain sound core capital, which is vital in mitigating risks from their balance sheets and the operating environment,” the credit-rating firm said.

“Most rated banks in the country have liquid balance sheets and deposits as their main funding source, thanks to ample domestic liquidity,” it added.

While the Bangko Sentral ng Pilipinas requires banks to maintain a minimum 10-percent capital adequacy ratio (CAR)—the proportion of capital to risk-exposed assets of banks—the average for universal and commercial banks in the country stands at about 16 percent.

Moreover, Fitch stressed that the banks’ core capital—which included equity shares and retained earnings and are considered having the highest quality among types of capital—stood at a healthy 12.9 percent.

Given this, the credit-rating firm said any deterioration in the global economic performance arising from the lingering crisis in the eurozone should not significantly hamper profit-generation of Philippine banks.

Should some corporate clients of banks find difficulty paying their loans, Fitch said the banks have the ability to absorb such losses.

Earlier, BSP Governor Amando Tetangco Jr. said banks in the country have minimal exposure to the eurozone.

Citing data as of end-June 2011, Tetangco said that bonds and other instruments issued from the eurozone and held by Philippine banks accounted for only 1.4 percent of their total assets.

This was a decline from the 2.9 percent registered at the start of 2010, something Tetangco said was an indication that Philippine banks immediately disposed of their euro-denominated assets when the debt crisis in Europe started to escalate.

Meantime, Fitch said there were risks to the “stable” outlook on Philippine banks. It said one of the challenges confronting banks in the country was the heavy concentration of loans to a few corporate borrowers.

“Fitch expects the structural balance sheet issues of many rated Philippine banks (including concentrated loan books and foreclosed properties with poor reserves) to be a main source of impairment, especially if the rising global uncertainties were to significantly affect domestic operating conditions,” the credit-rating firm said.

Nonetheless, Fitch said the significant capitalization of banks tempered the impact of default risks on their financial standing.

“However, the agency believes most major local banks can cope with a fresh downturn, thereby preserving their liquidity and capitalization,” it said.