Fitch keeps “stable” outlook on RP Banks

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Fitch keeps ‘stable’ outlook on RP banks

By Michelle Remo
Philippine Daily Inquirer

MANILA, Philippines—Fitch Ratings is maintaining a “stable” outlook on Philippine banks, saying the financial institutions have shown resiliency amid the global economic crisis.

In its latest assessment of banking sectors of Asian countries, Fitch said it did not see banks in the Philippines suffering from any major rise in loan delinquencies. It also said the country’s banking sector would maintain comfortable levels of capital and good quality of assets.

“Rise in delinquencies for most Philippine banks may continue to be modest and asset quality is likely to remain manageable. In view of this, banks’ earnings are expected to be adequate to absorb rising credit losses,” Fitch said.

The credit rating agency noted a slight increase in the Philippine banking sector’s non-performing loans or the NPL ratio, from 4.5 percent as of end-2008 to 4.6 percent as of end-June. Fitch said, however, that the increase was minimal, adding that any further increase in defaults could be absorbed by banks given their continued profitability.

The NPL ratio is the proportion of soured loans to total outstanding loans extended by banks. Loans are considered sour if these have remained unpaid at least 90 days upon maturity.

“This [comfortable NPL ration] partly reflects the improved health of the Philippine corporate sector, compared with the more leveraged position of several companies during the last Asian financial crisis,” Fitch said.

The Philippines, like neighboring countries, has adopted reforms in the regulation of its banking system following the Asian financial crisis of 1997, which led to rising loan defaults. The Philippine banking sector’s NPL ratio peaked at 18 percent in 2001.

Fitch said banks in the country, contrary to their counterparts in the Western economies particularly the United States, have maintained prudent lending standards since the Asian financial crisis, thereby helping keep their NPLs at comfortable levels.

“Banks… have since become more prudent and have mostly confined their credit exposure to familiar top-tier names (typically conglomerates), which may have better resilience in a downturn,” Fitch said.

Banks in the Philippines are assigned below-investment grade ratings by Fitch. Corporate entities cannot be given credit ratings higher than that of the national government. The Philippine government’s rating with Fitch is two notches below investment grade.

Fitch said chances of delinquencies on bank loans rising have declined given improvements in the global economic environment. In other countries, falling income levels were blamed for the rise in loan defaults and thus lower profitability of banks.

Even if the crisis is not over, economists said the global economy has already moved past the worst of the global turmoil and is on its gradual way to recovery.

The Philippines grew by only 0.6 percent in the first quarter due to the ill-effects of the global crisis, which led to steep decline in the country’s export income. In the second quarter, however, growth already accelerated to 1.5 percent.

The government expects the economy to further grow in the next two quarters, thereby posting an average growth for the full year of between 0.8 and 1.8 percent. Economic managers said the economy would recover further next year and grow by 2.6 to 3.6 percent.