Phl banks on sound footing – Fitch unit

The research arm of Fitch Group said the Philippine banking system remains on sound footing over the coming quarter amid rising concerns of economic overheating.

In its latest industry trend analysis, Fitch Solutions Macro Research said the country’s banking sector is likely to remain stable and that there is little downside risk to financial stability.

It said credit continues to be directed towards the productive sectors of the economy as the country is seen sustaining an above six percent gross domestic product (GDP) growth over the coming quarters.

“While there are concerns that the economy may be overheating and the business environment is deteriorating, we expect growth to remain supported by positive demographic trends, a strong public infrastructure drive, and deepening economic cooperation with China and Japan,” it said.

It added the robust macroeconomic backdrop should continue to bode well for household income growth and corporate profitability in general as credit has been moving away from the more speculative sectors such as real estate into more productive sectors like construction, manufacturing, and wholesale and retail.

Although total assets of the banking sector have continued to grow at a rapid pace, Fitch Solutions added balance sheets remain strong with capital adequacy ratio (CAR) at 15.4 percent in end-June still significantly above regulatory standards and international norms.

“Over the coming quarters, we expect the CAR to remain fairly stable as the weakening profitability will likely be offset by slower loan and riskweighted asset growth due to continued monetary tightening by the Bangko Sentral ng Pilipinas,” Fitch Solutions said.

The BSP’s Monetary Board has raised interest rates by 150 basis points since May to curb rising inflationary pressures as the consumer price index averaged five percent in the first nine months of the year and exceeded the central bank’s two to four percent target.