Moody’s raises credit outlook of Philippine banks

15-Apr-2021 Intellasia | PhilStar | 5:02 AM Print This Post

Moody’s Investors Service has raised the outlook of Philippine banks to stable from negative on expectations of a mild recovery from the pandemic-induced recession.

In a report, Moody’s said the recovery from the record 9.6 percent gross domestic product (GDP) contraction last year would support the operating environment for banks.

“Operating environment will be stable as the economy gradually recovers from the pandemic. We expect the Philippines’ economy to gradually recover in 2021 as an easing of measures to contain the outbreak and fiscal support lead to a gradual improvement in consumer spending and investment,” Moody’s said.

Economic managers are now looking at a slower recovery with a GDP growth of between six and seven percent this year.

Moody’s downgraded the outlook of Philippine banks to negative from stable in April last year as the economy stalled when Luzon was placed under enhanced community quarantine to slow the spread of COVID-19.

The debt watcher said the Philippine banking industry’s internal capital generation would keep pace with capital consumption, with credit growth likely to remain below pre-pandemic levels.

“As a result, rated Philippine banks will maintain sufficient capital buffers,” Moody’s said.

Data showed the average common equity tier 1 capital ratio of banks stood at 15.5 percent at the end of 2020, above the threshold set by the Bangko Sentral ng Pilipinas (BSP).

“The system is largely deposit funded, and risks to the stability of banks’ deposit bases are low. Further, the central bank has been proactive in providing liquidity to the system to prevent any near-term liquidity stress that can result from a sudden change in economic conditions,” it said.

Furthermore, the credit rating agency said the profitability of Philippine banks would remain stable as credit costs are expected to decrease because banks have already set aside significant amounts of loan loss provisions last year.

“Still, they will remain high because of lingering asset risks. On the other hand, trading income is likely to decline as markets turn less volatile. Loan yields will decline as banks reprice their loans at lower rates amid abundant liquidity and weak credit demand. A combination of these factors will keep banks’ profitability at 2020 levels,” Moody’s said.

Moody’s said the non-performing loans (NPLs) of Philippine banks would increase this year as debt holidays under the Bayanihan law expired last year.

“Ongoing social distancing measures, though less restrictive than in 2020 amid a high unemployment rate and weak consumer sentiment will continue to weigh on the debt repayment capacity of retail borrowers and some small and medium-sized enterprises,” it added.


Category: Philippines

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