AsPac banks can withstand property crisis - S&P

MANILA, Philippines - International credit rater Standard & Poor’s (S&P) said banks around the Asia-Pacific region including the Philippines appear well placed to withstand any moderation in house prices on the back of prudent lending practices, tight regulations, and high household savings rates.

In a report, S&P said it does not expect a deep, disruptive price correction the region’s residential property that could lead to systemic risk for banks in Asia Pacific where house prices have escalated in many markets in recent years.

“We expect that the region’s stable economic outlook and rising household income — factors that have influenced average house prices to date — can sustain the market,” S&P credit analyst Naoko Nemoto said.

Nemoto pointed out that most rated banks around the region have the capacity to absorb potential credit losses with limited impact on overall credit quality in the event of a downturn.

She cited the region’s generally conservative underwriting standards and low unemployment rates.

According to her, prime residential mortgage loans form a large part of Asia-Pacific banks’ mortgage portfolios and most legal systems in the Asia-Pacific region allow for full-recourse loans that could protect the region’s banks to some extent.

S&P does not anticipate a material deterioration in the credit quality of the region’s home loans expects under a stress scenario resulting in a 20 percent to 30 percent price correction in house prices coupled with a 100 basis point interest rate hike for each system.

However, it warned that a more severe downturn could pose a greater threat to the region’s banks.

Total assets of universal, commercial, thrift, rural, and cooperative banks operating in the Philippines went up by 11.6 percent to P6.91 trillion last year from P6.19 trillion in 2009 while their liabilities posted a double digit growth of 10.9 percent to P6.1 trillion from P5.5 trillion.

“The Philippine banking system remained sound, stable, and liquid during the review quarter,” the BSP reported.

The bank regulator cited the healthy growth in lending, deposits, and profitability as well as the improving credit quality through lower non performing loans as well as higher coverage ratios.

The BSP added that the capitalization or capital adequacy ratio of the Philippine banking sector reached 16 percent on a solo basis and 17 percent on a consolidated basis as of end-September last year remaining comfortably above the global standard of eight percent and the central bank’s minimum requirement of 10 percent.

“The capital adequacy ratio of the Philippine banking system continued to reflect the stability of the industry,” the central bank said.

The CAR is a ratio of a bank’s capital to its risk and the central bank tracks this indicator to ensure that banks have the capability to absorb a reasonable amount of loss and that they are complying with their statutory capital requirements. The country’s CAR was higher than Korea’s 14.6 percent and Malaysia’s 14.3 percent but lower than Indonesia’s 17.4 percent and Thailand’s 16.7 percent.