Global debt watcher Moody’s Investors Service on Tuesday downgraded its credit outlook for Philippine banks from “positive” to “stable,” as loan growth moderated this year and capital levels would likely decline.
“We changed our outlook for the Philippine banking system to stable from positive. The outlook expresses our expectation of how bank creditworthiness will evolve in this system over the next 12-18 months,” said Moody’s vice president and head of Asia-Pacific media relations Hector Lim.
These comments were contained in a Moody’s annual outlook update for the Philippine banking system, titled Banking System Outlook: Philippines – Resilience of Domestic Economy Drives Stable Outlook.
Moody’s said lenders’ current strong capital levels were likely to decline slightly “as banks continue to grow their assets to tap demand from segments that had lacked access to credit, particularly the high-yielding consumer segment.”
Moody’s previous positive outlook had been in place since 2012, and since then, most of its rated banks were upgraded, along with the sovereign (Baa2 stable).
Moody’s said it expected the Philippine economy to maintain growth despite headwinds buffeting global emerging markets. It expects real GDP to grow by 5.7 percent this year and 6 percent next year.
It said re-accelerating government spending, ongoing infrastructure projects, robust private consumption, strong remittance inflows and an expanding business process outsourcing sector would cushion against China’s economic slowdown and weaker merchandise trade.
“Although credit expansion is moderating after government-implemented cooling measures, it will remain brisk at 14 percent to 16 percent over the next 12 to 18 months from 19 percent in 2014,” it said.
“However, increases in property prices remain in line with per capita GDP growth, and in Moody’s view the Philippines can support a relatively fast pace of loan growth in under-penetrated sectors without experiencing excessive asset risks,” it said.
Moody’s also said that while credit costs would rise slightly as banks increased their lending to high-yielding segments, asset quality would remain stable. At the same time, increased lending to under-served segments would help widen net interest margins, as banks’ total lending to the competitive corporate segment will decrease, it said.
“Philippine banks’ funding and liquidity remain key credit strengths. Deposit growth has broadly kept pace with relatively fast loan growth owing to robust remittance inflows fromoverseas Filipinos and healthy corporate earnings, including business process outsourcing receipts,” Moody’s said.
It said the system-wide loan-to-deposit ratio was 63 percent as of September 2015, a level that was low by global and regional standards. The credit watchdog also said that given ample deposits, the banks’ reliance on confidence-sensitive market funding was low.
Moody’s said it expected government support for the banking system to flow through only in circumstances where there are contagion risks and only to the systemically important banks, considering the Philippine government has been proactive in implementing strict capital and liquidity requirements, and encouraging smaller banks to consolidate.