Stable outlook on the Philippine banking system

Moody’s Investors’ Service maintained this week its stable outlook on the Philippine banking system after noting the continued strengthening of the system’s asset quality and capital profile among others.

The outlook on the Ba2 sovereign rating for Philippines was also stable, the ratings agency said in a statement.

Moody’s said its decision this week “supports the robust credit fundamentals of the banks over the next 12-18 months.”

“The outlook reflects our analysis that consistently improving asset quality, good liquidity and the favorable capital profiles of Philippine banks would act as a cushion in a significantly adverse operating environment,” Moody’s Analyst Simon Chen said.

“We expect the banks to benefit from the continuing growth in the demand for loans from domestic sources, both public and private,” he pointed out.

Chen, in his report, said money sent home by Overseas Filipinos (OFWs) as well as government spending will support the growth output of the domestic economy despite the negative external environment.

Meanwhile, Chen raised the possibility that asset quality pressures “may surface, particularly in the export manufacturing sector which accounts for about 12 percent of the total loans in the system, and the profitability of banks may weaken.”

“In addition, operating costs will remain high and cost efficiency weak as banks continue to expand,” the statement cited.

Chen said “the impact on individual banks’ asset quality may be magnified by high single-borrower concentrations.”

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