The Philippine banking sector is the only one in the Asia-Pacific region that registered a positive outlook for 2016 from Fitch Ratings.
This comes after the rating agency revised its outlook from stable to positive for both the Development Bank of the Philippines (DBP) and the Land Bank of the Philippines (LBP) – which is due largely to their generally high capitalisation, healthy funding and liquidity as well as satisfactory loan-loss reserves.
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Apart from that, the ratings also reflect concentrated loan books, developing corporate governance standards and ownership by large family-controlled conglomerates.
The Philippine economy is expected to grow from this year’s 5.6 percent to 5.9 percent in 2016 – on the back of steady overseas remittances and sustained revenues from business process outsourcing services. It is this environment that Fitch believes will attract foreign banks entrants, resulting in a competitive banking sector.
Apart from that, Fitch expects Philippine banks to maintain high core capitalisation over 2016, noting that more demanding capital requirements for systematically important banks will be phased in 2017.
Despite the positive outlook, Fitch warns that the ratings could face pressure if credit profiles of banks deteriorate in the event of large acquisitions, excessive lending or rising concentration risk.
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