INTERNATIONAL credit ratings agency Moody’s Investors Service warned of “apparent risks” in the Philippine banking system that could undermine its stability.
Moody’s on Monday released a statement affirming its stable outlook for the Philippine banking system over the next 12 to 18 months.
The stable assessment was made on the back of the industry’s good asset quality, strong loss buffers and ample liquidity that allows for the accommodation of rapid loan growth in a growing economy.
However, Moody’s said the accelerating inflation is a risk, as well as the banks’ heavy exposure to large conglomerates.
“The operating environment will continue to be supportive for banks, with GDP growth to slow but remain strong compared to the Philippines’s own historical rates and growth in peer economies in the region,” Moody’s Vice President and Senior Credit Officer Srikanth Vadlamani was quoted in the statement as saying. “However, accelerating inflation is a risk.”
Vadlamani added that “favorable macroeconomic factors will underpin asset performance even as loans grow rapidly.”
“But sharper-than-expected increases in interest rates and a heavy concentration of exposures to large conglomerates pose key risks to asset quality.”
Moody’s also said banks’ capital ratios are likely to decline but the banks’ ability to raise external capital will limit capital erosion.
Consequently, the capital ratios of the country’s banks will remain among the highest in Asia and will continue to be a key credit strength, Moody’s said.
Moody’s assesses six key drivers for the system’s outlook, namely, operating environment (stable), asset quality (stable), capital (stable), funding and liquidity (deteriorating), profitability and efficiency (improving) and government support (stable).