Only PHL banks got positive outlook for 2016 in Asia Pacific – Fitch

The Philippines is the only banking market in the Asia Pacific region which registered a positive outlook for 2016 from Fitch Ratings, the debt-watcher said Wednesday.

Fitch revised its outlook on Development Bank of the Philippines (DBP) the Land Bank of the Philippines (LBP) to positive from stable.

"Philippine banks' generally-high capitalization, healthy funding and liquidity, and satisfactory loan-loss reserves help to balance the risks from relatively high credit growth over the past few years," Fitch said in an accompanying statement to the "2016 Outlook: Asia-Pacific Banks."

"The ratings also reflect concentrated loan books, developing corporate governance standards, and ownership by large family-controlled conglomerates," it added.

The Philippine economy is expected to grow by 5.9 percent in 2016 from 5.6 this year, on the back of steady overseas remittances and the sustained revenues from business process-outsourcing services.

"We believe the Philippine will remain attractive to foreign banks entrants in this environment, and banking sector competition will stay keen overall," Fitch said.

Fitch expects a mid-teen loan growth in 2016, given that the country's credit growth has eased – 12.6 percent in the year-to-September from 19.1 percent in 2014 – but still exceeds nominal gross domestic product (GDP) growth.

"High loan growth raises the risk of credit excesses; the rise of more aggressive lending practices at the margin could affect asset quality in due course," it said.

Profitability is also expected to remain broadly stable next year, as higher-yielding consumer and middle-market loans are seen to partly offset the sustained competitive pressure on net interest margin.

"Fitch expects the Philippine banks to maintain high core capitalization over 2016," it said, noting that more demanding capital requirements for systematically important banks will be phased in 2017.

According to Fitch, a credit rating upgrade for the Philippines will have a corresponding effect on the ratings of DBP, LBP, and potentially, BDO Unibank Inc.

"Such an upgrade may reflect a general improvement in domestic operating conditions and governance standards, which would likely be positive for the overall operating environment and credit profiles of the Philippine banks as well," it said.

However, the ratings could face pressure if large acquisitions, excessive lending, or rising concentration risk would cause credit profiles of banks to deteriorate. – Jon Viktor Cabuenas/VS, GMA News