PHL bank outlook stable with much of region

PHILIPPINE BANKS can expect to operate in a stable regional environment in the next 12-18 months as Moody’s Investors Service upgraded its outlook for the sector in Asia and the Pacific.

Moody’s kept its “stable” outlook for the local banking sector across all indicators for the next 12-18 months, matching expectations for India, Malaysia, Mongolia, Sri Lanka, Thailand and Vietnam, although Indonesia bested all with a “positive” outlook — meaning a rating improvement could be in the cards within the same time frame.

The July report, titled: Banks — Asia Pacific: Stabilizing Credit Cycle, showed the Philippine banking system bagged “stable” scores in terms of operating environment, asset quality, capital, funding and liquidity, profitability and efficiency, and government support.

Soured debts held by local banks dropped to two percent of their total loans as of end-March from 2.24% a year ago, while the lenders saw cumulative profits slip by a tad to P38.347 billion from P38.731 billion, according to central bank data.

Malaysia and India also secured “stable” outlooks for all credit factors, while Mongolia, Sri Lanka, Thailand and Vietnam got “deteriorating” tags in some fields.

A stable outlook implies manageable share of bad debts held by banks, an operating environment marked by “modest economic recovery” and “largely stable” commodity prices, while bank reserves are enough to cushion possible loan default.

Only China’s banking system got a “negative” overall outlook among developing Asia-Pacific nations, meaning that the landscape was less certain there.

Among advanced Asia-Pacific (APAC) economies, banking systems of Australia, Hong Kong and South Korea got overall “negative” outlooks, while those of Japan, New Zealand, Singapore and Taiwan were “stable.”

“We have revised the outlook on APAC banks to stable from negative, reflecting stabilizing asset quality in most banking systems, as the negative credit cycle in many systems proved to be mild [as well as] Banks’ asset quality… supported by a

modest economic upturn in APAC and relative stability in commodity prices,” Moody’s said.

“Banking risks are moderating due to improved operating conditions in the region. Regional economic activity has strengthened in 2017, with steady momentum reflected in PMIs (Purchasing Managers’ Index), industrial production, foreign trade, financial flows.”

Asian banks remain awash with cash and are unlikely to encounter liquidity issues as they rely on deposits and diverse funding sources, the debt watcher added.

In its December report, the credit rater gave an overall “negative” outlook for AsiaPacific banks, citing “challenging” operating conditions and volatile foreign capital flows that could drag down bank assets and profits in 2017.

The Philippines currently holds a “Baa2” sovereign credit rating with a “stable” outlook from Moody’s, keeping the country a notch above minimum investment grade that was affirmed last week.

The Philippines clocked a slower-than-expected 6.4% growth in gross domestic product in the first quarter — just below the government’s 6.5-7.5% full-year goal for 2017 but still the second-fastest major Asian economy in those three months next to China.

The Philippine banking industry had held a “positive” outlook from Moody’s from 2012 to 2015, until the debt watcher tempered the tag to “stable” as it saw the expansion plans of domestic players likely to affect bank capitalization, even as these lenders were expected to remain viable amid strong credit growth. —