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Moody’s maintains stable Philippine outlook
MANILA, Philippines — Moody’s Investors Service has maintained a stable outlook for Philippine banks as the tighter monetary conditions brought about by the aggressive rate hikes by the Bangko Sentral ng Pilipinas (BSP) is not likely to derail the recovery from the impact of the pandemic.
In a report on the Philippine banking system, the debt watcher said the country’s economic recovery would support banks’ operating environment and limit growth in problem loans.
“Accelerating rate hikes in the country will dampen but not derail the economic recovery,” Moody’s said.
Despite the aggressive rate hikes to tame inflation and stabilize the peso, the Philippines booked a gross domestic product (GDP) growth of 7.6 percent, slightly higher than the government target of 6.5 to 7.5 percent.
“We forecast that the Philippines’ GDP will grow 6.2 percent annually in 2023 to 2024. While this marks a slowdown from 7.3 percent in 2022, the Philippines’ growth rate will remain one of the highest in Asia, supported by strong growth in domestic consumption. The lagged impact of rate hikes as well as subdued capital investment by the private sector are key risks to the country’s economic growth,” Moody’s said.
The BSP has raised key policy rates by a total of 400 basis points, matching the aggressive rate hikes delivered by the US Federal Reserve last year to maintain a healthy interest rate differential. This brought the benchmark rate to a 16-year high of six percent.
The credit rating agency expects the asset quality of Philippine banks to remain at current levels after improving to 3.3 percent in 2022 from four percent in 2021, with corresponding decreases in loan-loss provisions.
“The quality of loans to large conglomerates, among which bank loans are heavily concentrated, will be stable as their revenue and earnings improve in line with economic growth. Large borrowers should be able to absorb a moderate increase in interest rates,” it said.
According to Moody’s, the industry’s capital ratios will remain high, although they have fallen from a two-year peak in 2022 because of unrealized losses on government securities because their yields rose.
It pointed out that capital levels remained above pre-pandemic levels and continue to be a key credit strength for Philippine banks.
“Banks’ capital ratios will stay at current levels because their retained earnings will be broadly sufficient to support loan growth. Profitability will be stable amid little changes in margins and loan-loss provisions,” Moody’s said.
Latest data from the BSP showed that earnings of Philippine banks jumped by 37.5 percent to hit an all-time high of P309 billion last year from P224.75 billion in 2021.
“However, banks will still have sufficient deposits to cover loan growth. Further, we expect the central bank to remain proactive in providing liquidity to the system to prevent any near term liquidity stress that can result from a sudden change in economic conditions,” Moody’s said.
Source: https://www.philstar.com/business/2023/03/02/2248562/moodys-maintains-stable-philippine-outlook