Moody's keeps 'stable' outlook for PH banking system

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Metro Manila (CNN Philippines, April 11) — Moody’s Investors Service has retained its “stable” outlook for the Philippine banking system amid the ongoing economic rebound and expected improvement in banks’ profitability.

“An easing of coronavirus-related restrictions in the country will stabilise the banks' operating environment and slow the growth in problem loans,” said the international debt watcher in a report Monday, also citing the improving business and consumer sentiment. 

Most of Moody’s-rated banks in the Philippines have been granted a stable outlook, with only the Philippine National Bank and the Unionbank of the Philippines getting negative ones.

Moody’s also said it sees banking institutions being more profitable this year, with loan loss provisions expected to go down as asset quality stabilizes. Still, they could remain above pre-COVID levels as banks continue to set aside provisions for lingering asset risks.

“Banks' capital ratios will modestly decline closer to pre-pandemic levels as loan growth picks up, but they will remain high, well above regulatory requirements,” added the American credit rater.

It also said banks’ deposit bases are likely to be stable.

“Loan-to-deposit ratios will rise to pre-pandemic levels as loan growth accelerates along with the economic recovery and deposit growth slows amid tighter liquidity in the system. However, banks will still have sufficient deposits to cover loan growth,” explained the company.

Moody’s latest outlook, however, notes risks. For instance, it expects ratios of non-performing, restructured, and overdue debts to remain higher than pre-pandemic times.

“The default risks of undiversified mid-size and large companies operating in sectors severely affected by the pandemic, such as hospitality and retail, remain high, although the easing of restrictions has eased stress for them to some extent,” it explained.

The credit rating agency also flagged rising inflation amid the Ukraine-Russia conflict, possible resurgence of COVID-19 infections due to new variants, and a potential hike in interest rates may “dampen but not derail” economic recovery.

Moody’s expects economic output to expand 7% this year and 6.2% next year, both within the government's 7-9% and 6-7% growth target bands for 2022 and 2023.