The S&P Global Rating has corrected its economic risk trends for Philippine banks from “negative” to “stable” as easing mobility restrictions could help lenders improve asset quality.
“We have revised our economic risk trends for the Philippines from negative to stable. The Philippine restructuring debt ratio is significantly lower than its regional counterparts, such as Indonesia, Malaysia and Thailand, ”it said in a report.
In a note on Tuesday, debt observers said the industry’s non-performing loan (NPL) ratio has probably already peaked and is set to decline. It said rebounds in the economy and write-offs could help improve the quality of assets.
“[However,] Some slippage is possible from the restructured pool, especially from the service sector and from expanded customers. We believe that Philippine banks are well positioned to absorb this residual stress due to their enhanced capitalization and adequate provision coverage, ”said S&P.
Data from the central bank shows that the NPL ratio of banks reached a three-month high of 4.24% in February. Loans rose 2.38% to P472.664 billion from a year earlier.
The industry’s NPL ratio reached a 13-year high of 4.51% in July and August 2021, still much lower than the 17.6% seen after the Asian financial crisis in 2002.
The banking sector appears to be benefiting from the gradual relaxation of mobility restrictions amid growing coronavirus cases, loan observers say.
However, potential outbreaks remain a risk due to uncertainty about the severity of its effects, it added.
“Strict mobility sanctions will hurt business and consumers, further hurting the quality of assets for the banking sector,” S&P said.
Metro Manila and some provinces were under alert level 3 in January to prevent omikron growth following the holiday season. Sanctions were gradually relaxed and most areas of the country are now under the most relaxed warning level 1.
However, officials are observing another contagious variant of the virus called Omicron XE, which has already been detected in parts of Asia, such as Thailand and India.
Based on S & P’s assessment, for economic risk, the Philippine banking industry sees extremely high risk in terms of economic resilience and low risk of economic imbalance. Credit risk in the economy also creates high risk for the sector.
Meanwhile, for industry risks, there are higher risks for institutional structures but less for competitive mobility and system-wide financing.
Philippine banks’ net income rose 44% to P223.66 billion in 2021, according to central bank data. It was driven by a collapse of creditors’ debt loss provisions as the economy recovered. – Loose Wendy T. Nobel