MANILA (PNA) — Fitch Ratings remains positive on the Philippine banking system given the strong capitalization and the country’s financial stability.
In a report, the debt rater said the domestic banking industry’s “profit growth will be underpinned mainly by balance-sheet expansion.”
“The gradual shift in loan mix towards higher-yielding consumer and project finance should help offset competitive pressure on margins, while asset quality should remain broadly stable amid supportive macroeconomic conditions,” it said.
To date, Fitch has a ‘Stable’ outlook on the country’s banking system.
Since domestic liquidity remains high, the debt rater said “system liquidity remains healthy” and cited the low aggregate loan to deposit ratio at 71 percent as of the third quarter of 2016 and large placements in the various facilities of the Bangko Sentral ng Pilipinas (BSP).
“Liquidity conditions should remain comfortable against debt and currency market uncertainty. We expect banks to continue to prize stable deposits and term funding ahead of Basel III LCR (liquidity coverage ratio) requirements that will be phased in over 2018-19,” it said.
The Basel III LCR targets to make banking sectors around the world resilient by ensuring that financial institutions have enough high-quality liquid assets that they can easily convert to cash in times of a 30-day liquidity stress scenario.
Fitch said Philippine banks core capitalization was expected to remain above regulatory levels, with the BSP’s risk-based capital adequacy ratio (CAR) set at 10 percent, higher than the eight percent set by the Bank for International Settlements (BIS).
It forecasts growth of weighted assets to be faster than that of internal capital generation.
“We expect the banks to address this by raising fresh capital when needed,” it said.
Measures to further strengthen the domestic banking system, through refinements in the central bank charter and new capital requirements among others, is also expected to continue “as the financial system broadens and develops.”
“Sustained economic development and further improvement in system regulation and risk management could strengthen banks’ overall credit profiles, if they maintain their existing healthy financial metrics and balance-sheet strengths,” the report said.
“Conversely, a reversal of recent positive economic and governance trends would hut banks’ profits in the longer term,” it added.