Fitch: Philippine banks stable amid flood mess

THE PHILIPPINE banking sector faces potential challenges this year as a flood control corruption scandal weighs on economic growth, Fitch Ratings said.

“Obviously, the flooding scandal poses downside risks,” Tania Gold, senior director and head of Fitch’s South and Southeast Asia Banks Ratings, said in a webinar on Wednesday. “It is a risk we’re watching, but not making us move the needle on anything currently.”

Fitch maintains a “BBB-” rating for the Philippine banking system with a neutral sector outlook and a stable rating for the operating environment.

Late last year, widespread flooding exposed irregularities in flood-control projects, prompting investigations that implicated government officials and private contractors in corruption allegations.

The scandal has weakened consumer and business confidence, contributing to a slowdown in economic growth to 4% in the third quarter, the slowest in over four years. The economy grew 5% in the first nine months, below the government’s 5.5%-6.5% target.

Despite the scandal, Fitch expects the economy to expand above 5% this year, which could support high single-digit loan growth and bolster bank profitability.

“We are still forecasting GDP growth of over 5% in the Philippines this year, which supports our loan growth in the kind of high single-digit range, which is helping the earnings and profitability of the banking sector,” Ms. Gold said.

Outstanding loans at major banks rose 10.3% year on year to P13.988 trillion in November, matching the previous month’s pace, which was the slowest in more than a year.

Ms. Gold noted that risks to asset quality stem primarily from banks’ lending practices rather than the flood-control scandal.

The main concern is how much unsecured lending banks are doing and their appetite for risk, she said,.while citing the potential for unrest linked to the scandal.

The Bangko Sentral ng Pilipinas earlier highlighted the banking sector’s sustained growth in assets and deposits as a support for the domestic economy. — Katherine K. Chan