October 20, 2015

Moody’s report highlights strength of Philippine banks

The Philippine Star today quoted a report by Moody’s Investor Service as saying the Philippine banking system is a source of credit strength as it is “virtually immune from external shocks.” It reportedly highlighted that Philippine banks are largely deposit-funded and is also aided by remittances from OFWs and are thus less dependent on external funding and exports. Further, the article quoted Moody’s as saying that the local banking system, as a whole, is well-capitalized, profitable, well-managed and very liquid.

Our take: We agree with the view of Moody’s that Philippine banks should be less affected by the current global headwinds that are affecting emerging countries. This should allow local banks to continue supporting credit growth while leveraging on their expanding operations. This, however, does not mean that banks are totally unscathed. Banks have been affected by the uncertainty in monetary policy outlook due to decelerating inflation numbers.

This has resulted in the delay of expected interest rate hikes, causing bank margins to stay lower for longer. Banks under our coverage are now working on maintaining their growth trajectories while operating more efficiently in order to compensate for flattish margins and low asset yields. – WealthSec