November 23, 2014

Moody’s maintains positive outlook on local banking sector

According to an article from the Philippine Star, Moody’s Investor Service has kept a positive outlook on the Philippine banking sector on expectations of further credit expansion. The article quoted Moody’s as saying that the latter expects loan growth to be maintained at 15% to 17%, given the low credit penetration and ample liquidity in the financial system.

Further, the article quoted Moody’s as saying that local banks are well-positioned against external shocks given stable asset quality, strong capitalization and adequate reserve levels. Moody’s outlook for the local banking system has been positive since December 2012.

Our take: We agree with Moody’s positive outlook for the local banking sector. We see the BSP’s prudent regulatory oversight and the sector’s general compliance with these regulations as key reasons behind stable asset quality and adequate capitalization amidst sustained balance sheet growth.

Notwithstanding recent regulatory changes, we also believe that there is room for continued credit growth, given low credit penetration and sustained economic growth. We expect these to be reflected in the improving earnings of banks in 2015. – WealthSec