Moody’s changes outlook on PHL banks from positive to stable

By Joann S. Villanueva

MANILA, Nov. 24 (PNA) — Moody’s Investors Service remain optimistic on the Philippines’ banking system but lowered its outlook from positive to stable on projected slight decline on banks’ capital levels in line with the financial institutions’ move to increase assets to address rising credit demand.

The positive outlook on the country’s banking system has been in place since 2012.

In a statement, the debt watcher said it expects a robust outturn for the Philippine economy this year, with the 2015 growth projection at 5.7 percent and the 2016 at six percent.

Thus, banks’ asset quality is seen to remain stable and liquidity to remain a boost to credit strength.

“Currently strong capital levels are likely to decline slightly as banks continue to grow their assets to tap demand from segments that had lacked access to credit, particularly the high- yielding consumer segment,” it said.

The credit rater cited that “the Philippine government has a mixed historical track record of supporting banks in need, but its capacity to provide support has increased in recent years owing to improvements in fiscal management.”

It also noted that private consumption in the country remains strong, pinned by remittances and the business process outsourcing (BPO) sector.

And while loans are expected to increase, Moody’s expected this to be around 14-16 percent, lower than the 19 percent in 2014 after the government implemented macroprudential measures targeted to address possible asset bubble.

On the other hand, it said that “increases in property prices remain in line with per capita GDP growth, and in our view the Philippines can support a relatively fast pace of loan growth in underpenetrated sectors without it leading to excessive asset risks.”

Relatively, the debt watcher forecasts credit cost to increase a bit as banks widen the share of consumer loans.

“The increasing proportion of loans to underserviced segments, which implies a decreasing proportion of total loans to the competitive large corporate segment, will also lead to a widening in net interest margins, supporting profitability,” it added.

Moody’s also discounts a “bail in” move from regulators in the near term.

“We do not expect the Philippines to adopt a bank resolution regime that includes “bail in” mechanisms for unsecured creditors during our outlook horizon, although Philippine regulators may consider doing so in future in line with global trends,” it said.

“The central bank has been proactive in implementing strict capital and liquidity requirements for local banks, and is clearly encouraging consolidation into a system with fewer but stronger banks,” it added. (PNA)