Moody’s maintains stable outlook for Philippine banking system

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MOODY’S Investors Service maintained its stable outlook for the Philippine banking system as their operating environment should benefitIft of the reopening of the economy, but downgraded loans that remain above pre-pandemic levels will continue to pose risks.

Amid better economic conditions, Moody’s said banks proIfwe see that the table improves as loan losses improveffers will probably go down.

“Loan loss provisions as a percentage of gross loans will decline to an average of around 0.8% in 2022 as asset quality stabilizes. Loan loss provisions will still remain above pre-pandemic levels as banks continue to build provisions to cover lingering asset risks,” Moody’s said in a note on Monday.

Higher transaction volumes that will boost fee income will also be a boon to bank revenues, the Debt Watcher added.

“Net interest margins will be broadly stable even as interest rates rise, as the repricing of lending rates and a gradual recovery in high-yield retail lending to pre-pandemic levelsfffix funding cost increases,” Moody’s said.

The credit assessor expects non-performing loans to continue growing this year, albeit at a slower pace.

Moody’s said the lifting of regulatory relief measures is not expected to cause a sharp deterioration in the quality of lenders’ assets, as defaults on affThe small businesses and retail borrowers affected were mostly already recognized last year.

“While conglomerates are a key source of systemic risk because bank lending is highly concentrated among them, they will remain resilient as their diversified revenue streams will help avoid a sharp drop in cash flow. flouch,” he said.

High default risk among small businesses affaffected by the pandemic such as those in the hospitality and retail sectors, but Moody’s believes the continued easing of mobility restrictions could help ease them.

The latest central bank data showed the banking sector’s bad debt ratio hit a three-month high of 4.24% in February. These loans increased by 2.38% to reach 472.664 billion pesos compared to the previous year.

In terms of capital buffers, Moody’s said lenders’ Common Equity Tier 1 capital ratio is expected to decline to around 15% in 2022, which is still above the required minimum. Banks will likely use their capital to spur loan growth this year, he said.

Moody’s said banks’ funding conditions will be stable as they are largely deposit-backed.

“Loan-to-deposit ratios will reach pre-pandemic levels as loan growth picks up alongside the economic recovery and deposit growth slows amid tighter liquidity in the system. However, the banks will always have knownffisufficient deposits to cover loan growth,” he said.

“Furthermore, we expect the central bank to remain proactive in providing liquidity to the system to avoid any short-term liquidity stress that may arise from a sudden change in economic conditions,” the statement added. debt watcher.

Moody’s rates eight commercial banks and one state-run lender in the Philippines, which together account for about 82% of the sector’s total assets at the end of 2021.

These are BDO Unibank, Inc. (baa2), Metropolitan Bank & Trust Co. (baa2), Land Bank of the Philippines (ba1), Bank of the Philippine Islands (baa2), Philippine National Bank (ba1), China Banking Corp. (baa3), UnionBank of the Philippines, Inc. (baa3), Rizal Commercial Banking Corp. (ba1) and Security Bank Corp. (baa3). — Noble LWT

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