Banks’ credit profiles improving

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Banks in the Philippines are an “outlier” compared to other Asian banks when it comes to credit profiles, credit-ratings agency Moody’s Investors Service said.

In its latest report titled “2014 Outlook—Asian Banks: Well-positioned to weather asset quality challenges,” Moody’s said that Philippine banks’ credit quality remains on an improving trend.

The report, which was authored by Stephen Long, managing director for Moody’s Financial Institutions Group for Asia, said that banks in the country are “benefitting from a strong economic outlook despite the recent disasters and the absence of concerns about excessive credit growth.”

Meanwhile, Moody’s added that the credit profile and rating positioning of Asia’s banks continue to compare well with those of other regions.


“Most systems in Asia are well capitalized and enjoy a strong profitability buffer, while the assets remain largely funded by domestic deposits, a situation which adds resilience to their liquidity profile,” it stated.

Moody’s also expects these strengths to persist next year, allowing most systems to remain resilient in its base case scenario, which is characterized by the gradual recovery in global growth.

However, the ratings agency noted that credit quality in Asia has generally peaked and that some systems will face increasing asset quality challenges.

Moody’s said that these challenges include the continued rapid credit expansion; the high and in some cases still-rising, property prices; and the potential end to the US Federal Reserve’s quantitative easing program.

On the other hand, Moody’s said in a separate report that the damages brought by Super Typhoon Yolanda may pose a downside risk to its 7-percent growth outlook for the Philippines this year.

“On Typhoon Yolanda [international name of Haiyan], Moody’s report notes that economic conditions in the affected regions are likely to deteriorate sharply in the fourth quarter of this year,” the ratings firm said.

However, Moody’s said that the Philippines’ healthy external position is likely to remain intact, as prevailing economic and fiscal trends will continue over the next one to two years.

It noted that the country’s foreign exchange reserves exceed external debt. As of November, the country’s gross international reserves rose to $84.024 billion.

Moody’s added that the current account continues to be bolstered by remittance inflows from overseas Filipinos and services exports, particularly from the business process outsourcing sector.

The country’s recorded a current account surplus of $2.5 billion in the second quarter of the year, while remittances in September rose by 6.8 percent year-on-year to reach $2.1 billion.

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