Fitch Ratings: Banks might use one-time gains to offset trading income slowdown

Local banks might resort to posting one-time unrealized gains to make up for likely lower income from trading in securities, a Fitch Ratings executive said in their agency's  “2012 Outlook: Asia Pacific Banks” report disclosed Thursday.   Fitch director for financial institutions Alfred Chan said advanced adoption of new financial reporting standards on financial instruments would enable the banks to book the one-time revenue boosters on held-to-maturity bonds.   He pointed out that this year, banks will find it “difficult to sustain” the trading income levels they had in 2010 and for much of 2011.   Bangko Sentral ng Pilipinas (BSP) data show that universal and commercial banks saw their earnings grow by 12.2 percent to P69.63 billion in the first nine months of last year compared to the P62.03 billion in the same period in 2010.   Chan noted that some rated local banks have balance sheet issues that could impair their operations.   “However, (Fitch) believes most major local banks can cope with a fresh downturn, thereby preserving their liquidity and capitalization,” he added.   The Fitch Fatings executive also said the local banks are expected to transition to capitalization standards that the BSP decided to implement in January 2014—much earlier than the January 2018 deadline for the worldwide banking community.    “Local capital rules under Basel III – effective 1 January 2014 – are unlikely to be onerous for the banks,” Chan said because most of the country’s major banks have adequate liquidity posture and deposit profiles.   “With the system-wide loan/deposit ratio of 60 percent, Basel III's liquidity standards may be less burdensome for the Philippine banks,” Chan added. — ELR, GMA News