MANILA – Philippines banks’ profitability is seen to remain stable due to higher loan growth and lower credit provisioning, factors which Fitch Ratings expects to counter the impact of reduced margins and lack of extraordinary trading gains.
“We expect the deterioration in reported asset-quality metrics to accelerate in 2021 as debt moratoria mandated by regulations expire in December 2020, though the impact on profitability is likely to be cushioned by the banks’ pre-emptive general provisioning in the preceding year,” the debt rater said in a report dated Dec. 1, 2020.
The debt moratorium referred to pertains to the 60-day, one-time leeway mandated under Republic Act No. 11494, otherwise known as the Bayanihan to Recover as One Act.
The Bangko Sentral ng Piliipinas (BSP) has issued a memorandum requiring all covered institutions to apply the grace period for existing loans, current and outstanding, “falling due, or any part thereof, on or before December 31, 2020”.
The report projects the effective implementation of the proposed Financial Institution Strategic Transfer (FIST) Act to aid banks on their impaired loans.
The proposed measure, it said, “put the banks in a better position for recovery after 2021”.
The report added the proposed measure, which is targeted to help banks divest non-performing loans (NPLs), “would hinder the recognition of impaired loans and make it difficult for the banks to assess borrowers’ cash flow and determine their viability”.
“We expect any extension –in response to sustained weakness in certain segments–to be more targeted,” it said.
With net interest margin (NIM) seen to decline next year because of the total of 200 basis points reduction in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates this year, Fitch projects the central bank to keep its accommodative monetary policy stance.
Meanwhile, the report expects the drop in property prices in the country to have a “manageable impact on real estate loan quality as the banks are more heavily exposed to the larger developers with stronger finances”.
“However, a sustained or significant decline in property prices would have wider repercussions on the banks’ balance sheets –given the sector’s high correlation with the broader economy and as it accounts for 20 percent of the banks’ loan portfolios,” it added.