Wednesday, 27 January 2010

Moody’s upgrades RP banking industry outlook to ‘stable’

Erik de la Cruz

MOODY’S Investors Service has upgraded the industry outlooks for 12 of the banking systems in Asia-Pacific to stable from negative, including the Philippines, citing improving local economic prospects and stabilizing global conditions.

The global debt watcher announced the rating action on Tuesday, a day after it painted a “generally positive trend” in the region’s sovereign ratings amid expectations of a robust economic expansion this year and with debt levels remaining at manageable levels.

The systems with stable outlooks aside from the Philippines are Australia, China, Hong Kong, Indonesia, India, Korea, Malaysia, New Zealand, Singapore, Taiwan and Thailand.

Moody’s said it was maintaining negative outlooks for Cambodia, Japan, Mongolia and Vietnam.

“Improved economic conditions underpin the change in the Philippine banks’ industry outlook from negative to stable,” says a report written by vice president and senior credit officer John Tham, and vice president and senior analyst Youngil Choi.

The Philippines’ gross domestic product is projected to grow 3 percent this year, faster than the estimated expansion of 1 percent in 2009, but below the 2004-2008 average growth of 5.7 percent, they said.

“We expect domestic consumption, helped by robust remittances, a better export outlook and election spending— against a backdrop of stabilizing global conditions—to benefit the banking industry over the next 12 to 18 months,” they said.

“Some ‘political noise’ could emerge in an election year, but is not expected to cause excessive instability.”

The analysts said an expanding economy means loan demand should increase. Interest rates may rise in such an environment, but they said higher rates should benefit banks’ margins as their loans typically reprice faster than deposits.

“These factors should moderate the effects of competition and a potential hike in typhoon-related provisions,” they said, referring to the back-to-back weather disturbances that hit the country in the latter part of 2009.

Barring “significant shocks,” they said Philippine banks’ loan-loss reserves, capital and earnings prospects are expected to offer “reasonable creditor protection” over the next 12 to 18 months.

Basically the same factors underpin the stable outlooks for other banking systems in Asia-Pacific, Moody’s said.

“Three factors underpin the generally better outlooks across most of Asia’s banking systems, and they are improving local economic prospects and stabilizing global conditions; and improving access to international debt and money markets,” said Deborah Schuler, a Moody’s senior vice president.

The third factor, she said, is “a continued adequate level of resilience to cope with remaining macro- and microeconomic risks, with the banking systems having suffered only limited damage during the past 30 months of the financial crisis.”

Schuler, meanwhile, noted that the four Asian banking systems carrying negative industry outlooks were also exhibiting some signs of stability, but they remained “more vulnerable to shocks.”

“Typically, these systems were weaker going into the crisis, may have suffered more during the crisis, and/or operate in economies experiencing slower recoveries,” she said.

Despite the upbeat economic outlook, with growth seen returning to trend rates, Schuler said nonperforming loans will remain “above normal” throughout much of the region for at least the next 12 to 18 months.

Of the region’s advanced economies, only Japan still has a negative outlook on Moody’s list.

Despite continuing improvements in fundamentals over 2009, the agency said the operating environment in Japan “remains characterized by the onset of deflation; very weak credit growth and employment figures; still volatile equities market; and limited growth opportunities inside its domestic markets.”

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