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Banks (Finance)

Global Financial Crisis Threatens Philippine Banks' Financial Profiles

Strategic Insights

— 1 min read

Two international debt watchers, Moody's Investors Service and Fitch Ratings Inc., warned that the financial profiles of Philippine banks may deteriorate due to the global financial crisis and the resulting economic slowdown. Despite this, the rating agencies admitted that the fallout would be contained, and the risk of a system-wide banking crisis in the Philippines is low. The Bangko Sentral ng Pilipinas (BSP) dismissed the latest rating actions, stating that they are related to the systemic support assumption used by Moody's and not to the banks' operating performances.

Key Takeaways:

  • Moody's Investors Service warned that credit fundamentals may experience some pressure from slower economic growth, with Philippine banks likely facing challenges from slower loan growth and higher credit costs.
  • The rating agency qualified its earlier upgrade of the Philippines' sovereign credit score by a notch to Ba3 from B1, indicating that the government would still have to pay a premium when borrowing abroad.
  • The Philippine banking system is small compared to its Asian peers, with domestic banking assets equal to 70% of gross domestic product (GDP).
  • Fitch Ratings Inc. agreed that a challenging operating environment may put a dent on the balance sheets of local lenders in the next 12-18 months, with the key risk being higher impairment charges.
  • Loan-related losses are likely to stem from new delinquencies, which may potentially be "lumpy" in nature as the corporate sector accounts for 60% to 70% of system-wide loans.
  • The Bangko Sentral ng Pilipinas (BSP) dismissed the latest rating actions, stating that they are related to the systemic support assumption used by Moody's and not to the banks' operating performances.
  • BSP Governor Amando Tetangco Jr. said that the country's banking system remains sound and stable against the backdrop of the ongoing global financial turmoil.

Statistics:

  • The Philippine banking system's domestic banking assets account for 70% of gross domestic product (GDP).
  • The corporate sector accounts for 60% to 70% of system-wide loans.
  • Fitch Ratings Inc. expects higher impairment charges due to loan-related losses from new delinquencies.
  • The banks' below-investment grade ratings indicate low intrinsic quality or strength of the banking system.

Sources:

  • "Global Financial Crisis Threatens Philippine Banks' Financial Profiles," The Manila Times, Manila Times, Philippines, Jul. 29 2009.
  • "Moody's Cuts Philippine Banks' Ratings to Junk," Fitch Ratings Inc., Fitch Ratings Inc., 2009.
  • "Country and Company Shareholders' Guide - Philippines," Bangko Sentral ng Pilipinas, Bangko Sentral ng Pilipinas, 2009.

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