RP banks get credit outlook upgrade from Moody's

Global debt watcher Moody's Investors Service has upgraded its fundamental credit outlook on Philippine banks to stable from negative due to improving economic conditions. The Philippine banking system was one of the 12 banking industries upgraded by Moody's in its latest Asian banking industry outlook. Aside from the Philippines other countries whose banking systems were upgraded to stable from negative were Australia, China, Hong Kong, Indonesia, India, Korea, Malaysia, New Zealand, Singapore, Taiwan and Thailand. Moody's senior credit officer John Tham and senior analyst Youngil Choi said improved economic conditions underpinned the change in local banks' industry outlook. Tham and Choi said strong dollar remittances from Filipino workers abroad would continue to boost private consumption, while exports would likely recover this year. "We expect domestic consumption, helped by robust remittances, a better export outlook, and election spending — against a backdrop of stabilizing global conditions — to benefit the banking industry over the next 12 to 18 months," they said. The analysts also downplayed the risks posed by the national and local elections in May on local banks. "Some political noise could emerge in an election year, but is not expected to cause excessive instability," they added. The New York-based credit rater expects Philippine gross domestic product (GDP) to grow by 3 percent this year from about 1 percent last year. The growth forecast is slower than Vietnam's 5.7 percent, Indonesia's 5.6 percent, Malaysia's 4.3 percent and Thailand's 4 percent. According to Tham and Choi, the better economic outlook would support earnings in two ways. The analysts said loan demand would increase and higher interest rates would benefit banks' margins. "These factors should moderate the effects of competition and a potential hike in typhoon-related provisions," Moody's said. "Barring significant shocks, we expect banks' loan-loss reserves, capital and earnings prospects to offer reasonable creditor protection over the next 12 to 18 months," Moody's said. Moody's downgraded the banking industry's rating outlook to negative from stable last March as the easing economy contributed to banks' weaker credit fundamentals. Local banks rated by Moody's include Allied Banking Corp., Banco de Oro, Bank of the Philippine Islands, Development Bank of the Philippines, Land Bank of the Philippines, the Metrobank Group, Philippine National Bank, Rizal Commercial Banking Corp. and United Coconut Planters Bank. Philippine banks remained generally strong and healthy, with most banks able to meet the withdrawal requirements of their depositors, the central bank earlier said. As of end-June, the banking industry’s capital adequacy ratio — a measure of a bank’s capital in relation to the risks it takes — stood above the regulatory minimum of 10 percent. It was also better than the Basel Accord’s standard ratio of 8 percent. Regulators use the ratio to monitor the health of the financial system. The industry ratio on a solo basis, which includes banking operations here and abroad, stood at 14.81 percent. On a consolidated basis, which includes banks’ subsidiaries, the ratio stood at 15.68 percent. The ratios were 0.25 and 0.38 percentage point higher, respectively, than the figures at the end of March. — GMANews.TV