MANILA, Philippines - Moody’s Investors Service has kept a “positive” outlook on the Philippine banking system on expectations its low penetration and the strong economic growth will support further expansion in credit.
In a report late last week, Moody’s said banks are well-positioned to guard themselves against external shocks given a stable asset quality, strong capitalization and adequate reserve levels.
Ample domestic liquidity has also supported banks’ funding and liquidity needs, the debt watcher said, adding lenders’ profitability levels are seen to gradually improve.
“The positive banking sector outlook from Moody’s – which the Philippines solely enjoys out of 69 countries – cements the view that banks in the country have what it takes to continue serving the funding requirements of a robustly growing economy while keeping their balance sheets healthy,” Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said.
“This outlook is a recognition of the prudent regulations by the Bangko Sentral ng Pilipinas that have pushed banks to maintain sufficient buffers against shocks and to keep their risk exposures manageable. With its favorable metrics, the country’s banking sector will remain a pillar of strength for the Philippine economy,” he said.
Moody’s outlook for the local banking system has been positive since December 2012.
Moody’s said it sees potential for the banking sector to further grow its loan portfolio given a relatively low credit-to-GDP (gross domestic product) ratio of 43 percent as of June. Moody’s said it expects a 15-to 17-percent loan growth over the outlook horizon or 12 to 18 months for the banking system.
At the same time, banks are forecast to maintain a stable asset quality as the favorable operating environment is seen limiting the creation of new soured loans.
“Funding and liquidity will remain strengths for Philippine banks’ credit profiles,” Moody’s said.
The debt watcher said that the system remains fully funded by deposits, while the ample domestic liquidity keeps funding costs on savings and time deposits low.