Metro Manila (CNN Philippines, October 13) — Two credit rating agencies see rising risks for Philippine banks as the COVID-19 crisis drags on, putting pressure on profits and capital.
S&P Global Ratings on Tuesday gave negative rating outlooks for the Bank of the Philippine Islands (BPI) and Security Bank Corp. as economic troubles from the pandemic seem to worsen.
BPI managed to keep its “BBB+” rating while Security Bank remained at “BBB-.” However, both were given a negative outlook to signal chances that their credit ratings may be downgraded in the coming months.
“The economic risk trend for banks operating in the Philippines has turned negative, in our view,” the debt watcher said in a statement, pointing out that the Philippine economy will likely contract by 9.5 percent this year.
S&P said a downgrade may come if operating conditions do not improve, but may be lifted if headwinds are addressed.
“We believe the risk of credit losses soaring for Philippine banks is higher than we expected, given challenging economic conditions,” it added, noting that previous lockdowns, joblessness, and weak economic activity will eat into the banking sector’s asset quality, earnings, and capitalization in the next two years.
The government extended a loan payment freeze and a 30-day grace period after lockdowns ended in June, followed by another two-month leeway for outstanding loans that borrowers could take advantage of between September 15 until December 31, 2020.
In a separate report, Fitch Ratings opted to keep the ratings for private banks BPI, BDO Unibank, Metrobank, Philippine National Bank with a stable outlook, but placed Sy-owned China Bank on negative watch.
While Fitch sees government support or possible bailouts for the four bigger banks, it noted that the lenders’ viability ratings “continue to be under pressure amid the steep economic downturn.”
“Weak domestic consumption and accelerating credit impairment are turning banks’ operating environment more challenging,” Fitch said as it gave a 9 percent full-year forecast for the local recession.
Banks will see profits drop as they set aside more funds for credit provisioning, with the health and financial crisis potentially exposing them to more loan defaults.
The Bangko Sentral ng Pilipinas has been easing its regulatory requirements to give some leeway for lenders to conserve its resources while allowing sustained loan releases to sectors, particularly for small businesses.
However, S&P said this may lead to smaller margins for lenders with key interest rates trimmed to a record low of 2.25 percent, which is the basis of banks in setting loan rates. “Any cut in banks’ regulatory reserve requirement could partly mitigate the downward pressure on margins,” it added.
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