Moody’s Investors Service has identified the Philippine banking system as one of the most resilient in the world in the event of a crisis.
Stress tests conducted by Moody’s show that the impact on bank capitalization of a simulated shock would be lower for the Philippines than the global average.
Under Moody’s hypothetical extremely severe scenario, the average capitalization ratio globally would drop by 5.5 percentage points, faster than the decline of 4.9 percentage points for the Philippines.
Also, the average bank capitalization globally under this scenario would be 6.0 percent, much lower than the 8.4 percent for the Philippines.
The estimated 8.4-percent capitalization ratio for the Philippines under the “stressed” scenario would still be better than the international benchmark of 8 percent prescribed under Basel regulations.
Capitalization ratio is defined in the Moody’s report as the tangible common equity of banks as a percentage of their risk-weighted assets.
There are 68 economies around the world whose banking systems are assessed by Moody’s.
“The Philippine banks’ resilience to stress is positive compared to other banking systems around the world,” Moody’s said in its latest Philippine banking outlook report titled “Resilience of Domestic Economy Drives Stable Outlook.”
In the conduct of a stress test under a hypothetical crisis situation, Moody’s applies multipliers to baseline probabilities of loan default. This is meant to deliberately exaggerate the potential shock to better gauge the ability of banks to absorb unforeseen developments.
Moody’s also said it had assigned a “stable” outlook on the Philippine banking system after it upgraded the credit ratings of various banks in the country. Prior to the upgrades, Moody’s had assigned a “positive” outlook.
Among the banks whose credit ratings were revised recently include Banco de Oro, Metropolitan Bank and Trust Co., Bank of the Philippine Islands, Land Bank of the Philippines, Philippine National Bank, and Rizal Commercial Banking Corp.
The credit ratings of BDO, Metrobank, BPI, and Land Bank were upgraded by a notch from Baa3 to Baa2. The ratings of PNB and RCBC were upgraded by two notches from Ba2 to Baa3.
The latest assessment by Moody’s of the Philippines’ banking sector is consistent with the view it will remain sound and stable, and will continue to support sustained growth for the overall economy.