Debt woes overseas unlikely to harm Philippine banks

Fitch Ratings said the Philippine banking sector was expected to remain largely unharmed by the debt-related problems in the United States and the Euro zone.

Ambreesh Srivastava, senior director and regional head for financial institutions of Fitch, said Philippine banks did not have significant exposure to the United States and Euro zone economies. This means that defaults in these areas would not harm the local banks’ health, he said.

Any impact would be indirect, Srivastava said, such as the potential drag on the ability of borrowers to pay their loans.

“In our view, as a consequence of what is happening in the Western world, profits could moderate and there could be some deterioration in asset quality. But the fact that banks have fair amount of ammunition in terms of high capital buffer, there would be no major consequences on the banks (in the Philippines),” Srivastava told banking reporters.

He said Fitch had conducted a stress test on Philippine banks, and results showed they could survive the risks brought about by the debt woes in the West.

The Bangko Sentral ng Pilipinas (BSP) reported Wednesday that the average capital adequacy ratio (CAR) of the country’s banking system stood at 16.02 percent by the end of December 2010.

This was higher than the 10 percent minimum CAR imposed by the central bank. International standards set the ideal CAR at only 8 percent.

“The Philippine banking system remained stable as the CAR of different bank categories continued to exceed the BSP’s minimum ratio of 10 percent and the Basel Accord’s standard ratio of 8 percent,” the BSP said in a statement.

In the meantime, Srivastava said Philippine banks, given their enormous liquidity, had the ability to lend more even if lending in the country was already growing by a respectable pace.

He said banks in the country could increase lending without worrying about possible changes in their credit ratings.

The Fitch official, however, said lending activities should always be done in compliance with prudent credit practices.—Michelle V. Remo