Phl banks adequately capitalized

Each of the large banks reported higher net interest margin in the first half of 2019 relative to the first half of 2018, contributing to stronger net interest income growth

Local banks remain adequately capitalized, their net interest having grown stronger still in the first half.

This was learned on Thursday from Fitch Ratings who reported on a number of events contributing to this assessment.

“Capital adequacy mostly improved in first half 2019, with steady internal capital generation and lower loan growth,” Fitch said.

“(Also,) we expect capital ratios to decline gradually as loan growth re-accelerates and outpaces internal capital generation in the medium-term,” it added.

For Fitch this means the banks generally have the necessary buffers to weather any unforeseen shocks in the future.

“Net interest margin (NIM) trends have diverged between the three large Philippine banks — the Bank of the Philippine Islands, Banco de Oro and Metrobank — and their rated mid-sized peers China Banking Corp., Philippine National Bank and Rizal Commercial Banking Corp.,” Fitch said.

Capital adequacy mostly improved in first half 2019, with steady internal capital generation and lower loan growth.

“Each of the large banks reported higher net interest margin in the first half of 2019 relative to the first half of 2018, contributing to stronger net interest income growth. Meanwhile, NIM generally compressed over the period for the three rated mid-sized banks,” it added.

According to the credit watcher, this reflects the differences among franchises within a highly competitive banking environment.

With sound but tighter liquidity conditions, lenders tapping wholesale funding should be expected as banks endeavor to fund future growth. This despite customer deposits being the main funding source in the near-term.

On the expanding public scrutiny on offshore gaming operators in the country, Fitch said its impact on banks, particularly on their assets, would likely be indirect given limits set by developers on their direct exposure for such.

“(This) may have knock-on effects for domestic property demand. Anecdotally, the sector has absorbed roughly 30 percent of Manila office space over 2017-2018, lifting retail and housing demand in surrounding areas,” Fitch said.