PHILIPPINE banks are expected to weather the crisis brought about by the global coronavirus disease (Covid-19) pandemic, as lenders were seen building up their buffers in April this year.
In its most recent assessment on the Philippine financial industry, S&P Global Ratings said it has observed that Philippine banks are “bolstering their buffers” for economic turbulence ahead.
“Philippine banks have increased provisioning to prepare for a possible threefold rise in credit losses, amid sharply slower domestic economy. The lenders revealed a large increase in provisions in their first-quarter results, in anticipation of higher nonperforming loans (NPLs) in the coming quarters,” S&P said.
S&P painted a scenario on how the near future would look like for local lenders. According to its credit analyst Nikita Anand, the local banking sector is expected to see low-single-digit credit growth, rising nonperforming loans and credit costs, and declining profitability for the rest of the year.
For the full year, credit losses are expected to rise threefold to 1.3 percent of total banking sector loans. This is from the 0.45-percent credit loss average seen in the last five years.
In terms of NPLs, S&P forecast a 2-percentage point rise in nonperforming assets, including restructured loans and repossessed assets, to 5.4 percent.
The ratings agency also flagged banks’ exposure to highly affected sectors such as hotels and catering (2 percent of bank lending), wholesale and retail trade (12 percent), transportation (3 percent) and manufacturing (10 percent). Retail loans, which form 18 percent of the banking sector’s books, could also see higher defaults in credit cards (at 3.5 percent) and unsecured personal loans (at 1.5 percent).
While secured retail loans such as mortgages and auto loans will not likely be in the first wave of nonperforming assets, they will see some stress as unemployment rises, the credit watcher said.
Largely, however, S&P said the Philippine banks’ asset quality will depend on the performance of the corporate sector, which forms 82 percent of banks’ loan books. Large conglomerates with their strong business profiles, diversified revenue streams and solid liquidity buffers will likely come through the challenging operating conditions intact. Micro, small and midsize enterprises—which comprise 7 percent of the banking sector’s books—and leveraged corporates may face challenges, S&P said.
“Philippine banks have built good financial buffers and are entering this slowdown from a position of strength. The banking sector’s good capital position (14 percent Tier-1 ratio) and higher provisioning will likely help them manage the rising risks in the operating environment,” Anand said.
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