PHL banks have adequate capital to ride US, EU woes – Fitch

Fitch Ratings said the economic troubles of the United States and Europe might have some moderating impact on the performance of Philippine banks. The debt watcher rated these firms as strong enough to ride whatever ripples may come from across the globe.
Ambreesh Srivastava, senior director and head of financial institutions in South Asia of Fitch Ratings said the capitalization of local banks as a whole is well about standards of the Bangko Sentral ng Pilipinas (BSP) and international benchmarks.

"In general we expect some pressures on the borrowers’ ability to service their obligations and therefore our best case scenario really is a slight uptick in NPL ratios of many of the banking systems including in the Philippines," Ambreesh Srivastava, senior director and head of financial institutions in South Asia of Fitch Ratings.

"The Philippine banking system remained stable as capital adequacy ratios of different bank categories continued to exceed the BSP's minimum ratio of 10 percent and the Basel Accord's standard ratio of 8 percent," the BSP said.

In Srivastava’s analysis, the slowdown in the US and Europe would have to be significant to have direct impact on Asian banks.

Fitch subjected the banks’ performance data to “stress tests" and learned that they can absorb a reasonable increase in credit costs.

"If credit cost rise to five percent of loans, that is when their profits would perhaps disappear and capital impairment risk would become imminent. But as long as credit cost stay below that threshold, profits will obviously suffer but there is no real risk of capital impairment and government having to bail out the banks," Srivastava said.

Srivastava also explained that “profits could moderate and there could be some deterioration in asset quality but the fact that banks have fair amount of ammunition in terms of high capital buffers, loan loss reserve covers we believe that there would not be any major consequences on the banks."

The BSP said local banks capital adequacy ratios have stayed flat at the consolidated basis of 16.97 percent and 16.04 percent on solo basis quarter-on-quarter.

Bank of the Philippine Islands, Banco de Oro, Metrobank, Development Bank of the Philippines, and Land Bank of the Philippines recently got rating upgrades from Fitch. — With Earl Rosero/VS, GMA News