|
By Maricel E. Burgonio, Reporter
FITCH Ratings Inc. maintained its stable outlook
for Philippine banks due to the improvement in their financial
profile despite the expected weaker performance in lending and
profits.
In a statement, Fitch said local lenders have
improved their financial profile over the past two to three years
due to better asset quality and enhanced capitalization.
The credit rating firm, however, expects the
less benign economic environment to result in weaker performance
with slower growth in lending and profits, as well as a modest
deterioration in asset quality.
These risks are largely reflected in the
banks’ relatively moderate to weak individual ratings and the
banking systemic risk indicator of “D,” which denotes low
intrinsic quality or strength of the banking system.
Fitch expects banks’ profitability to weaken
because of very limited trading opportunities on government
securities amid rising yields and possibly mark-to-market losses.
Banks’ lending growth, however, picked up
driven mainly by consumer financing and corporate loans after a long
period of weak credit demand. Despite this pickup, credit demand is
expected to slow down due to the expected lower consumer demand on
account of high inflation, Fitch said.
It said the domestic economy is likely to grow 5
percent to 6 percent due to high inflation and interest rates.
“Some slowdown in credit demand is likely to
arise from the curtailing of consumption spending, particularly in
view of rising interest rates, and increased operating costs for
businesses,” the rating company said.
Outstanding loans of commercial banks including
reverse repurchase agreements rose 10.6 percent in March from a year
ago. This was higher than the 5.7 percent growth posted in February.
Of the total loans, the share of corporate loans
has slightly fallen but still forms a high 75 percent last year,
whereas consumer loans accounted for 13 percent and small and medium
enterprise loans another 12 percent.
Fee income opportunities have increased in the
businesses of remittance, cash management and wealth management.
These revenues are more recurring in nature than the volatile
trading gains Philippine banks used to enjoy and depend on, Fitch
said.
Non-performing loans (NPL) were 6 percent of
total loans and had satisfactory reserve coverage of 82 percent last
year. “NPLs have fallen, mostly by way of disposals and write-offs
in addition to recoveries in recent years,” the rating company
said.
Fitch forecast NPLs to rise due to rising
inflation and interest rates. At end-March this year, the NPL ratio
of universal and commercial banks improved to 4.54 percent from the
previous month’s 4.68 percent and a year ago’s 5.28 percent.
Foreclosed properties, however, may be more
difficult to dispose of, and will continue to pose a threat to
capital. Foreclosed properties were 40 percent of core equity last
year, with low reserve coverage of only 9 percent.
Fitch said the improved buoyancy of the equity
and debt capital markets until a few months ago enabled banks to
raise new funds to bolster their capital and provide a cushion to
the decline in capital ratios due to Basel II.
|
