Fitch gives 'stable' outlook for Philippine banks

Fitch Ratings assigned a “stable” outlook for the Philippine banking sector, citing the favorable impact of a growing economy on the industry’s financial performance.

A “stable” outlook indicates security of credit ratings from being downgraded, at least within a year.

Fitch said an improving economy would drive demand for loans and other services provided by banks, in the process boosting their income.

“With a satisfactory economic backdrop, the agency expects banks’ lending and fee-based activities to expand in 2011, although treasury gains may ease amid rising interest rates,” Fitch said in its latest report on the Philippines.

The outlook on the banking sector was anchored on Fitch’s projection that the Philippine economy would grow between 5 and 6 percent this year, consistent with the government’s own forecast.

The credit rating firm also cited the comfortable level of liquidity of the country’s banking sector, and this would help protect it from a crisis similar to that experienced in industrialized countries.

“In Fitch’s view, capital and liquidity buffers are crucial in helping banks preserve their credit profiles in the event of a renewed global downturn, given the fragile economic recovery globally,” Fitch said.

However, Fitch said the country’s banking industry faces risks including the relatively low capital cover for foreclosed properties. It said improving provisioning for these assets is one area Philippine banks must focus on.

Still, Fitch recognized the country’s banking sector for being able to survive the latest global turmoil.

“All the rated Philippine banks have weathered the global economic turmoil in 2008/2009 rather well, with credit costs easily covered by earnings and capital intact,” Fitch said.

The “stable” outlook on the Philippine banking sector came amid continually rising resources of the banking sector and growing bank lending.

Latest documents from the Bangko Sentral ng Pilipinas showed that outstanding loans by commercial banks amounted to P2.4 trillion as of end-April, up 14.2 percent year on year.

Fitch’s issuance of a “stable” outlook on the country’s banking sector came after it decided last month to raise the country’s credit rating on foreign debt from two notches to a notch below investment grade, or from BB to BB+.

The credit rating firm cited the Philippine government’s improving fiscal situation and the growing economy for the improved ratings.