MANILA- Loans extended by commercial banks' are seen to grow 17 percent this year and maintain an average growth of 13.6 percent until 2021 on back of the country's robust economic expansion.
Asset and loan growth in the Philippine commercial banking sector are likely to remain strong over the coming years, supported by the country's robust economic growth outlook, healthy capitalization and liquidity profiles, and the likelihood of further sector consolidation, BMI Research said in a research note.
Bangko Sentral ng Pilipinas (BSP) data show that as of end-May 2017, outstanding loans of universal and commercial banks (U/KBs) rose 17.4 percent year-on-year.
BMI Research, a unit of Fitch Group, said the country's commercial banks alone posted an average asset growth of 13.2 percent as of last May, the fastest growth since the last quarter of 2014.
It traced the rise of assets to increase in loans, supported by a strong economic growth and improvement in risk appetite.
Over the coming years, we maintain a fairly constructive view on the commercial banking sector given the country's robust economic growth outlook, banks' healthy capitalization and liquidity profiles, and likelihood of further sector consolidation, it said.
The research note cited the improvement of corporate profitability, which it expects to be advantageous to banks' asset quality and profitability.
It pointed out that while non-performing loans (NPLs) of commercial banks have risen since December 2016 we believe that this is not a cause for concern as the ratio remains very low compared to historical levels.
It also said that drop of asset quality has likely to do more with the amendments to the classification of impaired loans under BSP Circular No. 941 introduced in January 2017 rather than a deterioration in the operating environment.
This should see asset quality stabilize and perhaps even improve over the coming quarters, it said.
BSP Circular No. 941 issued on Jan. 20, 2017, amended regulatory definition of past due accounts, restructured loans and NPLs.
The central bank, in a statement earlier, said under the new rules, an account will be considered past due the day after it was not paid on contractual due date.
It gave BSP supervised financial institutions a cure period policy on a credit product-specific basis to allow their clients to pay up their debts.
Also, an account or exposure is considered non-performing, even without any missed contractual payments, when it is deemed impaired under existing applicable accounting standards, classified as doubtful or loss, in litigation, and/or there is evidence that full repayment of principal and interest is unlikely without foreclosure of collateral, in the case of secured accounts, it said.
All other accounts, even if not considered impaired, shall be considered non-performing if any contractual principal and/or interest are past due for more than ninety (90) days, or accrued interests for more than 90 days have been capitalized, refinanced, or delayed by agreement, it added.
Even with these changes, BMI continues to be positive on the country's commercial banks' performance in the coming years because of the industry's high capital buffers.
It said commercial bank's capital adequacy ratio (CAR), even with its decline in end-December 2016 to 14.4 percent from quarter-ago's 15.4 percent, remains strong.
This as it remains above the BSP's 10 percent requirement and the eight percent minimum requirements based on international standards.
Secondly, we believe that the industry will continue to maintain sufficient buffers amid active supervision by the central bank and given that many of leading banks have the ability to raise fresh capital due to strong financial backing from large conglomerates and the government, it said.
BMI said Philippines' commercial banks' 70.8 percent loan-to-deposit ratio is one of the lowest in Asia suggesting that Philippine banks have financed loans largely by using deposits rather than through international wholesale funding.
This reduces refinancing risk in the banking system as external borrowing tends to be difficult to roll over in times of uncertainty or rising global interest rates. It also lowers asset-liability mismatch risk arising from currency fluctuations, it added.
Source: Philippines News Agency