Banks’ asset quality seen stable on economic boost
ASSET QUALITY of Philippine banks is seen to remain stable next year on the back of the solid performance of large lenders despite global market volatility and the country’s sound macroeconomic fundamentals, S&P Global Ratings said.
“The loan quality in the Philippines has been quite stable so far and we expect that to continue in 2017 as well,” S&P credit analyst Ivan Tan said in a webcast yesterday.
“In contrast to the rise of the Southeast Asian banking sector, which has seen loan quality deterioration, the Philippine banking system is actually doing quite well,” Mr. Tan said. “I think the main difference with the Philippines compared with the export-oriented economies, like Singapore and Indonesia, is that it’s very domestically- focused. The [Philippine] economy is predominantly driven by domestic consumption and also the very healthy remittances that they have.”
The S& P analyst said the economy will help banks fare well despite uncertainties hounding
the market such as the impending Federal Reserve interest rate hike this month and the assumption of US President-elect Donald J. Trump.
Philippine gross domestic product grew by 7% in the third quarter, its fastest pace in three years, making it the fastestgrowing economy that period in the region ahead of China’s 6.7%, Vietnam’s 6.4%, Indonesia’s 5%, and Malaysia’s 4.3%.
Mr. Tan noted that there is currently a rise in non-performing loan (NPL) ratios among Southeast Asian banks due to volatilities in commodities, particularly gas and oil, and a slowdown seen in several economies that has hit small and medium enterprises (SME).
Still, the volatile global environment “is not affecting Philippine banks right now [as] the economy has almost no dependence on the commodities and the structure of the economy is such that the presence of SME is quite small.”
“The economy as a whole and the banking sector typically lend to large family-owned conglomerates [in the Philippines.] So naturally, given the dominance of the conglomerates in the Philippines, their balance sheets are strong their cash flows are strong,” Mr. Tan said. “So I think now Philippines is higher from the rest of Southeast Asia as a whole because its very domestically focused. Banks are very concentrated in their exposure to the large conglomerates.”
According to latest data from the Bangko Sentral ng Pilipinas soured debts held by big banks declined in August that sustained improvement in their asset quality despite heightened demand in lending activities.
Universal and commercial banks NPL — which are debts left unpaid for at least 30 days past due date — ratio shrank to 1.63% in August, down from 1.65% booked in July and well below the 1.86% share posted in August 2015.
The smaller share translated to P98.227 billion as of end-August, an uptick by 1.2% from its year-ago level at P97.048 billion.