Debt watcher S&P Global Ratings revised its banking industry country risk assessment on the Philippines to Group ‘6’ from Group ‘7’ previously amid the improvement of the domestic banking system’s credit fundamentals.
S&P, in a report titled ‘Banking Industry Country Risk Assessment: Philippines,’ classified the local banking sector at par with those of Brazil, Brunei Darussalam, China, Colombia, Hungary, Oman, Thailand, Trinidad and Tobago and Uruguay.
“We believe that credit fundamentals of the Philippine banking system have improved with the establishment of a centralized credit registry and credit bureaus, and improvement in banks’ underwriting practices in the consumer loans segment,” S&P said.
It said corporate sector profits remained healthy and credit losses from this segment would remain low. Consumer loans, which formed about 18 percent of banking sector loans, have historically had higher delinquencies than corporate loans.
“However, we expect the quality of consumer loans to improve due to better availability of data on the credit history of borrowers. The nonperforming assets in the banking system remain low indicating an upswing in the credit cycle amid robust macroeconomic conditions,” it said.
S&P said it expected the impact of the transition to Philippine Financial Reporting Standard 9 to be moderate and manageable, given favorable credit conditions. It said Philippine banks were well prepared for adoption with adequate capital buffers (common equity tier 1 ratio of about 14 percent) and provision coverage ratio of 120 percent built up in recent years.
S&P said, however, that the Philippines’ resilience was weak due to the country’s low-income levels. It said the country’s weak payment culture and rule of law resulted in high credit risk.
“In our opinion, the banks’ well-established domestic franchise will continue to help them to sustain a strong, stable, and diversified customer deposit profile. We expect banks’ risk appetite to remain manageable because they mainly offer simple and traditional products,” S&P said.
It also said that regulatory standards were broadly in line with international standards and in some instances more stringent.
It said inadequate legislation and legal protection for supervisory staff could compromise the regulator’s ability to implement prudential measures. It also said the government’s attempts to amend the legislation had so far been protracted.