THE economy’s robust outlook this year will be good for the domestic banking industry, global debt watcher Standard & Poor’s Rating Services said Wednesday.
S&P said in a report titled “The Philippines’ Supportive Economy Underpins a Stable Outlook for its Banking Sector in 2016” that banks were likely to benefit from the economy’s good growth prospects, and the healthy capitalization and asset quality.
“The Philippines’ robust economy will likely continue to drive expansion in domestic credit at about 2 times to 3 times GDP growth,” it said.
“We forecast 8 percent to 12 percent loan growth for the Philippines for 2015 and 2016, which is slower than in 2014 but remains high by regional standards,” it said.
The report, however, said the increasing exposure of Philippine banks to consumer loans could weaken their asset quality and push up credit costs, given the inherently high risk in this segment in a growing economy.
Standard & Poor’s expects the net interest margins of Philippine banks
to strengthen as the proportion of higher-yielding consumer loans in total loans rises. However, it said the increase was from a low base, and the impact on margins would likely be gradual. Also, increasing competition and the high cost-to-income ratio of these banks are likely to limit profitability gains.
“We also anticipate that domestic interest rates in the Philippines will trend upward, which may cause banks to book marked-to-market losses on their significant holdings of fixed-rate government bonds,” it said.
It said the combination of sound capital and funding profiles was an “enduring strength” of the Philippine banking system and would continue to underpin bank ratings in 2016.
The report also said active capital-raising by Philippine banks in recent years had more than covered the gap between internal capital generation and growth in risk-weighted assets.
Combined net profit of the country’s universal and commercial banks in 2015 declined from a year ago due to higher non-interest expenses.
Latest data from Bangko Sentral ng Pilipinas showed that bigger banks realized a net profit of P120.275 billion, one percent lower than the P121.661 billion in 2014.
Non-interest expenses—which include compensation and fringe benefits, taxes and licenses, fees and commission expenses, other administrative expenses, depreciation/amortization, and impairment losses—amounted to P252.584 billion as of end-December 2015. This was significantly higher than the P238.993 billion non-interest expenses a year ago.
Profits of universal and commercial banks came mainly from higher interest income. Data showed net interest income stood at P283.878 billion in end-December 2015, higher than the P261.750 billion a year ago.
There are 36 universal and commercial banks in the whole domestic banking system.