LOW NPL EXPOSURE LESSENS IMPACT OF CRISIS ON PH BANKS

Banks across Asean will feel the pinch from the Covid-19-induced recession, but the Philippine banking sector would be shielded by its relatively smaller exposure to bad loans, debt watcher Moody’s Investors Service said.

“Moody’s expects asset quality and profitability will deteriorate from good levels in 2019 across most banking systems, with Singapore, Malaysia and the Philippines having the best asset quality with nonperforming loans (NPLS) below 2 percent. While government support measures will offset some of the pressure on banks, they will not fully eliminate the negative impact,” it said in a statement.

“Despite the challenging outlook, the majority of banks are adequately capitalized, and Moody’s expects their funding and liquidity will remain sound and stable in 2020-2021. For instance, regulators in India, Thailand and Vietnam have restricted bank dividends, a credit positive for banks, while the largest banks will continue to benefit from deposit inflows as they are seen as safe-havens in times of stress,” it added.

Moody’s said this outlook for the region’s banking industry was based on its forecast that the gross domestic product (GDP) of India and most Asean countries would decline this year.

In the case of the Philippines, the government had projected 2- to 3.4-percent GDP contraction in 2020, while Moody’s forecast was a bigger 4.5-percent drop.

Across Asean, Moody’s said the extent of loan deterioration would depend on the pace of economic recovery, efficiency of government support packages and regulatory forbearance.

“Recognition of problem borrowers is likely to accelerate in 2021 as loan payment moratoriums are lifted or relaxed,” Moody’s said.

Also, it said net interest income was seen to decline due to margin contraction, while credit costs would likely rise due to weaker asset quality.