CREDIT rating agency Fitch Ratings said the outlook on most Philippine banks for 2017 is stable, with growth drivers continuing to sustain credit demand.
In a report, Fitch said it expects domestic demand to remain strong, fuelled by sustained remittance inflows and business process outsourcing revenue as well as favorable demographics and continued capital investment needs despite a tepid global economy.
“Plans by the new administration (elected in May) to accelerate infrastructure spending should also boost growth,” it said, forecasting a Philippine gross domestic product (GDP) expansion of 6.6 percent for 2017, among the highest in Asia.
The debt watcher said the robust economy will continue to drive brisk loan growth in the mid- to high-teens.
“We foresee the bulk of this channeled into infrastructure, real estate and other business investment activities, while strong consumer demand will continue to spur household borrowing,” it said.
Fitch also expects the regulator to stay alert to potential credit and asset bubbles as credit excesses will remain a risk in this environment.
Banks’ profit growth will be underpinned mainly by balance-sheet expansion, it said.
“The gradual shift in loan mix towards higher-yielding consumer and project finance should help offset competitive pressure on margins, while asset quality should remain broadly stable amid supportive macroeconomic conditions,” it added.
Fitch said banks’ system liquidity remains healthy as evident in the low aggregate loan-to-deposit ratio of 71 percent as of end-September 2016 and the significant pool of funds deposited with the central bank.
In addition, it said liquidity conditions should remain comfortable in 2017 as existing liquidity buffers, credit creation and foreign remittance inflows help to cushion against debt and currency market uncertainty.
“We expect banks to continue to prize stable deposits and term funding ahead of Basel III LCR [liquidity coverage ratio]requirements that will be phased in over 2018-2019,” it said.
The Philippine financial stability framework has improved over the last few years, with further enhancements underway items such as refinements to the central bank charter and local Net Stable Funding Ratio rules have been publicly discussed.
“We expect these efforts to continue as the financial system broadens and develops,” Fitch noted.
The credit watchdog said sustained economic development and further improvement in system regulation and risk management could strengthen banks’ overall credit profiles if they maintain their existing healthy financial metrics and balance-sheet strengths.
“Conversely, a reversal of recent positive economic and governance trends would hurt banks’ profiles in the longer term,” it said.
A significant economic downturn, leading to weaker domestic demand and large corporate or middle-market enterprise failures, would affect the operating environment and bank ratings, particularly as loan concentration is high, Fitch added.