PHL banks stable but some need higher reserves - Fitch

Fitch Ratings’ Singapore unit has given Philippine banks a “stable" outlook, citing lending operations and fee-based activities as plus factors. The global credit rating agency also identified some “structural issues" that have adverse impact on Philippine banks’ balance sheets. The global debt watcher said its assessment is “underpinned by an improving domestic economy and relatively low asset quality risk." “With a satisfactory economic backdrop, the agency expects banks' lending and fee-based activities to expand in 2011, although treasury gains may ease amid rising interest rates," Fitch added. Fitch Ratings also detected some “vulnerabilities" that could prove worrisome if the slow recovery of the global economy from recession adversely affects the Philippines. “Provisioning risks in a difficult environment may be significant, particularly for some low-rated banks, due to their concentrated loan books and foreclosed properties with low reserves (with 11 percent coverage on average at end-2010)," Fitch stressed. Rated Philippine banks were noted to have maintained “satisfactory capitalization and liquid balance sheets" with their Tier 1 capital adequacy ratio rising to 12 percent last December versus 11 percent a year earlier. Tier 1 capital consists mostly of shareholders' equity, and is deemed adequate if it can cushion asset risks. Fitch also noted the fresh equity raised by a few major banks and the stable average loans/deposits ratio of 60 percent. — With Earl Rosero/VS, GMA