MOODY’S Investors Service announced on Monday that it has maintained a stable outlook on the majority of Asia Pacific (APAC) banking systems, including the Philippines.
In a release, the international credit watcher said recovery in operating conditions and banks’ steady solvency and liquidity metrics support a stable outlook for 15 APAC banking systems, while one system —Vietnam—is on positive outlook.
The 15 banking systems with stable outlooks are Australia; Bangladesh; China; Hong Kong SAR, China; India; Indonesia; Japan; Korea; Malaysia; New Zealand; Pakistan; Philippines; Singapore; Taiwan, China; Thailand.
Moody’s said the outlook on many APAC banking systems could have been positive, if not for the military conflict in Eastern Europe, which is the key risk for the outlook.
“A potential further escalation of the military conflict and/or additional sanctions or embargoes on Russia’s exports would fuel commodity prices and inflation, a credit-negative for real economic growth, financial markets, business and consumer confidence,” the credit watcher said.
For the Philippines, Moody’s said the stable outlook comes mainly from the easing of coronavirus-related restrictions, which will stabilize the banks’ operating environment and slow the growth in problem loans.
“Banks’ profitability will improve as provisions decrease and core earnings increase. Banks’ capital ratios will modestly decline closer to pre-pandemic levels as loan growth picks up, but they will remain high, well above regulatory requirements,” Moody’s said.
The credit rating agency, however, warned of potential risks such as the rising prices due to geopolitical unrest and lingering effects of the pandemic-related economic disruption.
“The accelerating inflation due to the Russia-Ukraine military conflict, lingering pandemic woes due to new variants, and possible rate hikes in the country will dampen but not derail the economy’s recovery,” Moody’s said.
“Still, the system continues to face high tail risks as ratios of nonperforming, restructured and overdue loans will remain higher than pre-pandemic levels,” it added.
Regionally, Moody’s expects APAC banks’ profitability to generally rise this year because of wider net interest margins against the backdrop of higher policy rates.
Moody’s also said loan loss provisions as a share of gross loans in the region, will likely decrease modestly in parts of APAC; however, banks will be reluctant to release significant amounts of general reserves amid macroeconomic uncertainties.
“APAC banks will maintain strong and stable funding and liquidity, following improvements over the past two years in funding conditions that benefited from easier monetary policy and slow credit growth. Their core capital will remain stable, although a mild decrease will occur in some systems as banks will post higher credit growth and pursue capital optimization strategies,” Moody’s said.