Credit rater Moody’s Investors Service maintained its stable outlook for Philippine banks in line with its view that the economy will continue to be robust.
However, the ratings agency flagged merging risk for the banking industry brought about by its widening exposure to retail and small and medium enterprises (SME).
“For the Philippines, we continue to have a stable view on the banking system. This stable view has been around for a very long time and we are not changing [that],” Simon Chen, vice president and senior analyst for Moody’s Financial Institutions Group, said in a media roundtable themed “Sovereign and Banking: How manageable are the challenges?” held at Shangri La Hotel in Makati City on Wednesday.
Chen said the operating conditions of Philippine banks continue to be robust on the back of a very healthy flow of domestic consumption that drives opportunities for business growth for lenders.
PH growth outlook intact
The vice president and senior credit officer for Moody’s Sovereign Risk Group, Christian de Guzman, meanwhile, said the outlook for the Philippine economy remains intact.
“We do expect the Philippines to continue to grow at an elevated pace of 6.5 percent over the next couple of years,” he said.
Moody’s also sees continued improvement in the fiscal situation in the country, notwithstanding the government’s target of a wider deficit of 3 percent because of its infrastructure spending plan, which should push up the budget deficit, de Guzman said.
The government plans to boost infrastructure spending from 5.4 percent of gross domestic product (GDP) in 2017 to 7.4 percent of GDP by 2022, with total spending of P8.4 trillion on infrastructure planned for the 2017 to 2022 period.
“Also underpinning the stable outlook for the Philippine banks is how strong the buffers are. There are high capital ratios and very stable liquidity profiles that the banks have,” Chen added.
“We do expect the bank’s assets quality to remain stable over the next 12 to 18 months,” he said.
However, he stressed that Moody’s predicts the gross non-performing loans (NPL) ratio of banks “might move up quite a bit over the next 12 to 18 months” as lenders focus their loans growth on the retail and the SME sectors.
“These sectors are where delinquencies were higher, and when they focus their growth opportunities in the retail and SME and slowly performing in the corporates, then that is when we see that the overall NPL ratios could start to go up over the net 12 to 18 months,” he explained.
The latest Bangko Sentral ng Pilipinas (BSP) data showed that as of end-April this year, the banking system’s gross NPL ratio stood at 2.03 percent, lower than 2.21 percent a year earlier.
Last week, Moody’s affirmed the Philippines’ “Baa2” investment grade rating and stable outlook, but warned of political risks and cited indications of overheating in the economy.