PH banks sustain positive momentum
THE first nine months of the year saw Philippine banks sustaining first-half gains despite continued challenges, a financial research firm said.
“Philippine banks generally sustained the positive momentum ... as loan growth and asset quality stayed resilient in the face of recent macroeconomic headwinds,” Fitch Solutions unit CreditSights said in a new report.
It noted that net interest and fee incomes continued to provide a good cushion for poor trading income, “which continues to be down across the board due to rising rates ...”
“Sharply reduced credit costs,” meanwhile, “kept profitability back at or near prepandemic levels.”
Most banks’ fee incomes remained steady with double
digit year-on-year growth with Bank of the Philippine Islands (flat) and Philippine National Bank (down 8 percent) said to be the exceptions.
Credit costs at second-tier banks were higher on a quarterly basis, but from a low base, while that at first-tier banks were stable to lower in third quarter and remained broadly in line with each other at 60-66 basis points (bps).
“Coupled with persistently STUBBORN INflATION AND THE GENeral headwinds to global growth, we expect credit costs to rise and loan growth to be tempered over the next eighteen months or so,” CreditSights said.
Status updates were provided for seven Philippine banks: BDO Unibank (BDO), Bank of Philippine Islands (BPI), Metrobank (MBT), Philippine National Bank (PNB), Rizal Commercial Banking Corp. (RCBC), UnionBank of the Philippines (UBP) and Security Bank (SECB).
BDO, BPI, MBT were said to have stronger loss absorption and capital buffers, more benign asset quality and larger franchises compared to their peers.
“They benefit from a high exposure to large corporates which should be more resilient in a downturn, as well as their strong deposit franchises which temper the rise in deposit costs, allowing more uplift from the BSP’s rate hikes to their net interest margin (NIM),” CreditSights said.
“We acknowledge the headwinds facing the Philippines but see the risks as fairly captured in their current spreads, and thus retain our market perform recommendation on BDO, BPI and MBT,” it added.
CreditSights said it was “fundamentally comfortable” with SECB and UBP “but these banks lack size compared to the firsttier banks.”
UBP’s CET1 ratio dropped to 11.9 percent during the quarter as its acquisition of Citi’s consumer business in the Philippines officially closed. “We view it as thin but the bank has plans for an equity raise of P20 billion to bolster the depleted capital levels,” CreditSights said.
SECB was moved from market perform to underperform and UBP was kept at underperform. An underperform recommendation on PNB was also maintained on concerns over its weaker credit fundamentals.
“For RCBC, we view SMBC (Sumitomo Mitsui Banking Corp.) increasing its stake to 20 percent as a material credit positive as it provides an 400 bp uplift to the CET1 ratio and strengthens SMBC’s commitment to RCBC as the vehicle for its expansion into the Philippine market,” CreditSights said.
RCBC’s recommendation was kept at market perform.