Southeast Asian Banks unfazed by Europe Debt Turmoil

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SE Asia banks unfazed by debt turmoil in Europe

THE BANKING SECTORS OF the Philippines and other Southeast Asian countries remain in good shape even with the debt turmoil in Europe, said Moody’s Investors Service.

According to the credit rating firm, banks in this part of the world are strong enough to weather any adverse effects the crisis in the West may bring.

“With the exception of Vietnam and Cambodia, our Southeast Asian banking system outlooks are stable,” said Deborah Schuler, senior vice president and regional credit officer for Asia Pacific financial institutions at Moody’s.

“The region’s banks are well positioned to cope with the Basel III capital and liquidity requirements, thanks to their strong capital levels, traditional banking franchises and customer deposit funded loan portfolios,” Schuler said.

Basel III refers to a new set of capitalization and banking standards. It calls for stricter requirements that are meant to ensure the health of an economy’s banking sector.

Schuler said the levels of non-performing loans and rising revenue in the Philippines and its neighbors reflected the strength of their respective banking systems.

In the case of the Philippines, the Bangko Sentral ng Pilipinas has expressed confidence that the country’s banking sector will remain profitable this year even with renewed jitters among investors due to the debt crisis in Europe.

Optimism over the domestic economy has been bolstered by the robust 7.3 percent growth in the first quarter, central bank officials said. As such, demand for loans and other bank services in the country is expected to be substantial.

The BSP earlier reported that combined resources of universal and commercial banks, thrift banks and rural banks in the country amounted to P6.42 trillion—up 9.5 percent from P5.86 trillion a year ago.

Regulators said the increase in bank resources was supported by a rise in profit, mainly from lending activities, and deposits from the public.

Meanwhile, NPL ratio of universal and commercial banks in the Philippines stood at 3.4 percent as of end-April. This marked an improvement from the 3.64 percent posted in the same period last year.

The BSP said banks’ NPL ratio—the share of soured loans to total outstanding credit—already reflected the levels seen prior to the Asian financial crisis. In early 2000s, the average NPL ratio of the industry hit as much as 18 percent due to the ill effects of the 1997 financial turmoil in Southeast Asia.

The stable outlook on the region’s banking sector is partly anchored on the healthy economic performances of the countries involved and of the fiscal positions of their governments, Moody’s said.

“Sovereign credit fundamentals in the region have withstood the global turbulence of the past two years,” said Tom Byrne, senior vice president and regional credit officer for Moody’s sovereign risk group.

“External positions are stronger now, reflecting a robust rebound in exports and resulting in record levels of official foreign exchange reserves for most countries in recent months.”

The Philippines’ foreign exchange reserves hit a new record of $47.65 billion as of end-May 2010. The external liquidity of the Philippines allows banks to easily undertake foreign exchange borrowings to meet their foreign obligations.

Officials credited the sustained growth in remittances and rising inflows of foreign portfolio and direct investments for the increase in gross international reserves, which stood at $39.59 billion in May.