Global debt watchdog Moody’s Investors Service maintained a stable outlook for the Philippine banking system in the next 12 to 18 months, saying robust economic growth will support their asset quality at current strong levels.
Moody’s conclusions are contained in its report on Philippine banks released Thursday.
The outlook was based on Moody’s assessment of six drivers, including operating environment (stable), asset risk (stable), capital (stable), funding and liquidity (deteriorating), profitability and efficiency (stable), and government support (stable).
Moody’s has kept a stable outlook on the Philippine banking system since November 2015.
“Philippine banks will continue to benefit from the country’s strong economic growth,” Tengfu Li, a Moody’s analyst, said in the report.
“Over the next 12 to 18 months, their asset quality will stay broadly stable, capitalization will weaken moderately as loan growth picks up, profitability will remain stable, and domestic liquidity will continue to tighten but stay sufficient for the banks to sustain current growth levels,” Li said.
On asset quality, Li said banks would show strong asset quality despite increases in interest rates, because economic conditions were healthy and the financial performance of Philippine corporates remained strong.
As for capitalization, the banks’ capital consumption will continue to outpace their internal capital generation because of rapid credit growth, but shareholder support will prevent their capitalization from deteriorating significantly, Li said.
“Profitability will stay stable, supported by the expansion in net interest margins, and government support will remain strong for large banks,” Li said.
Earlier, industry leaders expressed their continued bullish outlook on the domestic banking system.
Based on the latest report on the Banking Sector Outlook Survey for the second semester of 2018 published by the Bangko Sentral ng Pilipinas, banks maintained their optimism on the country’s economic prospects as 86.1 percent of respondents expect the domestic economy to grow between 6 percent and 7 percent within the next two years.