PH banks among healthiest in Asia Pacific - Fitch

By Prinz P. Magtulis, The Philippine Star

Posted at Aug 08 2012 08:22 AM | Updated as of Aug 08 2012 09:58 PM

MANILA, Philippines - Philippine banks are among the healthiest in the Asia-Pacific region due to their large deposit base and healthy lending practices that allowed them to manage credit in the system, debt watcher Fitch Ratings said in a report released yesterday.

“Leverage trends within EM (emerging markets) Asia are mixed, though. Vietnam’s credit-to-GDP (gross domestic product) ratio has more than doubled since 1997, while Indonesia, Thailand, the Philippines and Malaysia have deleveraged substantially,” Fitch said in its report titled “Asia-Pacific Banks’ Rising Leverage Highlights Concerns” dated Aug. 7.

Philippine banks’ credit-to-GDP ratio, which measures the amount of loans extended as a proportion of the economy, would likely remain unchanged at about 25 percent for the year, Fitch said, making asset bubbles less likely to develop.

Too much credit in the system may spur inflation and contribute to speculation in asset prices, hence creating an asset bubble or a situation when real-estate prices are too high and do not reflect real market prices.

“Fitch believes that above-trend credit growth in tandem with booming property and equity markets remains the most reliable early-warning indicator, particularly in countries where regulatory forbearance is prevalent,” the report said.

“Reported asset-quality indicators for EM Asia do not yet indicate very significant concerns across EM Asia,” it added.

Latest data from the Bangko Sentral ng Pilipinas showed soured loans accounted for only 2.18 percent of total loans for the first five months of the year. Non-performing assets – which include bad loans and foreclosed properties – meanwhile stood at 2.71 percent. Both contribute to healthy balance sheets for lenders.

Fitch said lesser bad debts gives more space for banks to lend, noting that local lenders have not maximized their high deposits, which amounted to P5.084 trillion as of September 2011.

Loan-to-deposit ratio only stood at 58 percent last year, Fitch said, meaning only a little more than a half of loans extended accounted for total bank deposits.

“In the Philippines, they primarily source from their deposits the loans they extend. This is a good thing as they are not reliable to capital markets funding like debt issuances,” Fitch analyst Mark Young told The STAR in a phone interview.

However, the report said “legacy loans,” which include unpaid loans and foreclosed assets incurred by banks during the Asian financial crisis in 1997, may be stopping Philippine lenders from lending more.

“The Philippine banks have reasonable high capital. I believe banks can write them (bad loans and assets) from their balance sheets,” Young said.

Last month, BSP issued a circular that gave banks the option for a one-time charge of unbooked bad assets to their retained earnings instead of staggering them for years.