Philippine, Thai banks outperform neighbors in Moody’s stress test

PHILIPPINE BANKS are seen outperforming their regional peers in terms of withstanding negative shocks, according to Moody’s Investor Service which conducted stress tests of banks in emerging Asia.

In its Dec. 14 sector comment, the global debt watcher noted banks in emerging Asian markets, on average, are “well-prepared” to resist conditions set out in the stress tests.

“There are a number of reasons that explain why Emerging Asian banks outperform other regions in our stress tests… Emerging Asian banks stand out in terms of cost efficiency and they have a strong income generation, as well as significant levels of general reserves, giving them an extra cushion to absorb losses,” Jorge Rodriguez-Valez, a Moody’s Vice President and co- author of the report, was quoted as saying in a statement.

The Moody’s report also singled out the Philippines and Thailand as outperforming their neighbors. However, banks in Pakistan, Mongolia,

The test was conducted among 97 banks in Emerging Asian countries -- China, India, Indonesia, Malaysia, Mongolia, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam -- to assess their capacity in handling negative shocks.

“We think that these challenging macroeconomic conditions will only have a modest impact on the metrics of the banking system in the region,” the global debt watcher said.

“We expect a modest increase in non-performing loans (NPLs), from around 3% at the end of 2015 to 3.7% in 2017. Banks would be able to absorb losses from this increase in NPLs, and capitalization will roughly remain at its current level of 11%,” Moody’s added.

The stress test looked at three main components: loan losses, income haircuts and securities losses.

Moody’s noted the Emerging Asian banks are resilient against negative shocks because they “stand out in terms of cost efficiency,” with the region having about 40% cost- income ratio, well below global median of above 50%. —