THE Philippine banking system is expected to continue to perform well, as sustained economic growth will likely cushion the potential negative effects of external developments.
In a recently published assessment on the performance of Asia Pacific banks, Fitch Ratings said the local banking system is generally “stable.”
“The rating outlooks are all stable, reflecting the benign environment and supported by the banks’ adequate loss-absorption buffers, satisfactory profitability, as well as broadly steady funding and liquidity profiles,” Fitch said.
In the report, the credit watcher also said it expects operating conditions to be generally supportive of loan growth and credit quality.
“A recovery in government infrastructure spending should lift GDP [gross domestic product] growth in the coming year, but banking sector profitability is likely to moderate after a stronger 2019,” it said.
In the first half of the year, the Philippine economic growth dropped to below target due to the government’s inability to pass the budget on time. Economists, however, believe that the catch-up plan will lift the country back to a growth of 6 percent and higher, just within the government’s 6-percent to 7-percent target for the year.
“We expect a pick-up in government infrastructure spending to spur broader investment activity, amid sustained consumer demand.
This should bode well for loan growth, especially after several rounds of policy easing in recent months that partly reversed earlier tightening measures,” Fitch said.
Amid higher loan growth rates, Fitch said it expects downward pressure on capital adequacy ratios as loan growth picks up once more.
“The regulator has eased domestic systemically important bank (DSIB) buffer requirements for the largest banks, leaving room for their capital positions to drift lower. However, we expect any erosion to be mild, and capital buffers should remain adequate,” Fitch said.
Overall, Fitch’s assessment of emerging banking systems in Asia-Pacific remains stable for this year.
“The number of negative outlooks on individual systems has fallen slightly, with most central banks shifting course toward looser monetary policy and financial conditions. For those systems where Fitch has a negative sector outlook, we believe any deterioration in key financial metrics will only be moderate in the coming year,” the credit watcher said.
“The operating environment remains challenging, yet stable. Nevertheless, downside potential looms in most markets—external (e.g., global growth, macro issues) and internal (e.g., risk appetite) in origin—which policy-makers are warding off through measures to support near-term stability,” it added.