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Banks in the Philippines to remain resilient — Fitch Ratings outlook

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Banks' capital buffers have remained above standard. -- THE PHILIPPINE STAR/KRIZJOHN ROSALES

FITCH RATINGS has given a “stable” outlook for Philippine banks for 2018, with lenders expected to remain on solid footing as they receive a boost from a rapidly growing economy that will support brisk lending activity.

“Fitch has stable rating outlooks on all privately owned rated banks in the Philippines. This reflects our view that the banks will maintain their resilient credit profiles amid a favorable operating environment,” the debt watcher said in its 2018 Outlook for Asia-Pacific Banks published yesterday.

“The supportive environment, together with banks’ steady loss-absorption buffers, should help to offset potential risks from recent rapid credit growth.”

Robust economic growth is seen sustained next year on the back of “resilient” consumer spending and a steady stream of remittances, coupled with rising investments as the government’s ambitious infrastructure spending plans are rolled out, Fitch said.

In turn, upbeat economic activity will drive increased credit demand, which has been growing by double-digit rates as of the last few months.

Bank lending grew by 21.1% as of September, according to the Bangko Sentral ng Pilipinas (BSP).

Philippine gross domestic product (GDP) expanded by 6.9% in the third quarter, beating market expectations. This pulled the nine-month pace to 6.7%, putting the government’s 6.5-7.5% target for the entire year within reach, especially as GDP growth is expected to pick up even further in 2017’s last three months.

For 2018, economic managers expect growth to pick up to between 7-8%, triggered by increased infrastructure spending seen in turn to lure more private investments.

“Sustained rapid credit expansion may diminish banks’ capital ratios, but the rated banks generally have a good track record of raising additional common equity to support growth aspirations,” Fitch added.

Philippine lenders continue to hold more than enough funds to support loan growth, with liquidity seen to remain “healthy” for the coming year even as the firms will be subject to tighter liquidity buffers, as prescribed by the BSP in keeping with the international Basel 3 regime.

The regulator is expected to keep liquidity conditions “balanced” despite plans to cut the 20% reserve standard which is among the highest in the world, the credit rater added.

Freeing up these idle funds kept with the BSP will also enable banks to deploy them for productive investments.

Local lenders are likewise seen to enjoy healthy balance sheets, which would boost creditworthiness while also building additional buffers against potential shocks. “Over-exposure to riskier segments, such as real estate or unsecured project finance, would weigh on banks’ ratings if their loss-absorption buffers do not grow in tandem,” the debt watcher said of Philippine banks.

Across the region, Fitch expects robust economic growth across Asia-Pacific economies given improving trade flows, investment and demand for credit.

The Philippines holds a “BBB-” rating — the minimum investment grade status — with “positive” outlook from Fitch. — Melissa Luz T. Lopez

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