Moody’s maintains positive outlook on PH banks

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Credit-ratings agency Moody’s Investors Service has maintained its positive outlook on Philippine banks, noting that the country’s economy will remain supportive of healthy banking activities.

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In its just-released “Banking System Outlook: Philippines,” Moody’s said that it has maintained its positive outlook on the Philippine banking system for the next 12 to 18 months, based on its assessment factors surrounding the system.

The factors assessed by the debt watcher include the positive operating environment; stable asset quality and capital; stable funding and liquidity; stable profitability and efficiency; and positive systemic support.

“The positive outlook is in line with our expectation that GDP [gross domestic product]growth in the Philippines, which we expect will remain one of the strongest among emerging-market economies over the next 12 to 18 months,” said Simon Chen, Moody’s assistant vice president and analyst. The domestic economy grew by 7 percent in the third quarter of 2013 from 7.3 percent recorded the previous year, boosting the 2013 first nine-month growth to 7.4 percent from 6.7 percent last year.

The country remains one of the best performing economies in the region for the quarter, second only to China, and outpacing Indonesia, Vietnam, Malaysia and Thailand.

Moody’s noted that the positive outlook on the Philippine banking system is consistent with its positive outlook on the Philippine government’s “Baa3” rating.

“In that context, credit growth is likely to be in the range of 13 percent to 15 percent on an annual basis, while asset quality will be supported by the robust economy and relatively low retail credit penetration,” Chen added.

The Moody’s report also said that the banking system’s level of nonperforming assets should remain stable, after dramatic improvements in recent years, while provision coverage continues to rise.

Furthermore, it noted that despite strong loan growth in recent years, household indebtedness and corporate leverage remain low, with total system credit to GDP at about 40 percent, and on a slightly declining trend.

“We expect the Philippines’ robust economy and low interest rates to continue being supportive of borrowers’ ability to service debt,” said Chen.

The analyst added that the low-interest rate environment should result in the banks focusing on growing higher-yielding segments like small- and medium-sized enterprises, and retail.

More branches
Meanwhile, Moody’s is also seeing banks opening more branches in 2014 once restrictions on doing so in certain areas of Metro Manila are lifted in mid-2014.

The Monetary Board of the Bangko Sentral ng Pilipinas earlier approved a two-phased liberalization approach that is expected to fully lift the bank branching restrictions in key cities in Metro Manila, starting 2014 to promote a competitive market environment conducive to a better and improved quality of financial services delivery.

Moody’s points out that the restrictions were intended to encourage banks to set up operations in rural areas and to limit the banking system’s concentration in Metro Manila.

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