Phl banking system fundamentally sound – Moody’s

Moody’s Investors Service said the country’s banking sector poses limited contingent risks to the government.

“The Philippine banking system as a whole is wellcapitalized, profitable, competently managed and very liquid, thus posing limited contingent risks to the government,” Moody’s said its annual credit analysis on the Philippines.

Over the past several years, the debt watcher said a number of Philippine banks have received upgrades.

“The average intrinsic financial strength for rated banks – which together comprised 70 percent of system loans as of the end of June 2016 – rose to investment grade in 2015,” Moody’s said in the report.

The total banking system assets were worth about 91 percent of gross domestic product (GDP) as of end June. Total loans also accounted for half of the total assets.

Moody’s noted the country’s banking system is small relative to other rated member countries of the Association of Southeast Asian Nations (ASEAN) except for Indonesia as well as other large Baa-rated emerging market peers, such as South Africa and Thailand.

“The banking system is largely deposit-funded – aided by the steady flow of remittances – and has little exposure to external funding and exporters. Even foreign currency lending is fully backed by onshore sources of foreign currency financing, primarily deposits,” it said.

Moody’s pointed out the stringent oversight by the Bangko Sentral ng Pilipinas (BSP) supports financial stability, as evidenced by the adoption of international regulatory standards.

For example, the central bank required all the country’s universal and commercial banks to comply with Basel III capital adequacy standards by the beginning of 2014, without a phase-in period.

The regulator also set more conservative capital ratios compared to international standards, even calling for an additional capital conservation buffer above the regulatory minimum.

Following the BSP’s introduction of macroprudential measures in 2014 to forestall a real estate bubble, demand for housing remains strong.

The banking system also provides a stable source of financing for government debt. Bank holdings of government debt amounted to about P965 billion, or 25 percent of local currency government debt.