A financial research firm said the first nine months of the year saw Philippine banks continue to post gains in the first half despite ongoing challenges.
“Overall, Philippine banks maintained positive momentum … as loan growth and asset quality remained resilient in the face of recent macroeconomic headwinds,” Fitch Solutions CreditSights unit said in a new report.
It noted that net interest and fee income continued to provide a good cushion for weak business income, “which remains depressed across the board due to higher rates…”
Sharply lowered credit costs, meanwhile, have “kept profitability at or near pre-pandemic levels.”
Fee incomes at most banks remained flat with double-digit year-over-year growth, with Bank of the Philippine Islands (flat) and National Bank of the Philippines (down 8 percent) said to be the exceptions.
Credit costs at Tier 2 banks were higher on a quarterly basis, but off a lower base, while Tier 1 banks were stable to decline in the third quarter and remained broadly in line with each other at 60-66 basis points (bps) ).
“Coupled with continued stubborn inflation and general headwinds to global growth, we expect credit costs to rise and loan growth to moderate over the next 18 months or so,” Creditsights said.
Status updates were provided for seven Philippine banks: BDO Unibank (BDO), Bank of the Philippine Islands (BPI), Metrobank (MBT), Philippine National Bank (PNB), Rizal Commercial Banking Corp. (RCBC), UnionBank of the Philippines (UBP) and Security Bank (SECB).
BDO, BPI and MBT were said to have greater loss absorption and capital stores, more moderate asset quality and greater perks compared to their peers.
“They benefit from significant exposure to large corporations that must be more resilient in the event of an economic downturn, as well as strong deposit privileges that mitigate higher deposit costs, allowing for further upside from higher BSP rates to net interest margin (NIM),” he said. CreditSights.
She added, “We acknowledge the headwinds facing the Philippines but see the risks fairly captured in their current spreads and therefore we hold our Market Performance Recommendations on BDO, BPI and MBT.”
CreditSights said it is “fundamentally comfortable” with SECB and UBP “but these banks lack scale compared to the top-tier banks.”
UBP’s CET1 percentage fell to 11.9 percent for the quarter as its acquisition of Citi’s consumer business in the Philippines officially closed. “We consider it weak but the bank has plans to raise capital of 20 billion pesos to boost depleted capital levels,” CreditSights said.
SECB moved from market performer to underperform and UBP remained underperforming. The underperforming rating on PNB was also maintained due to concerns about its weak credit fundamentals.
“For RCBC, we see SMBC (Sumitomo Mitsui Banking Corp.) increasing its stake to 20 percent as a physical credit positive as it provides a 400 basis point increase to the CET1 ratio and strengthens SMBC’s commitment to RCBC as a tool for its expansion into the Philippines market,” said CreditSights.
RCBC Recommendation in Market Performance has been maintained.