Standard & Poor’s keeps its “stable” outlook on Philippine Banks

Standard & Poor’s keeping its “stable” outlook on the Philippines’ banking sector, citing a vibrant economy that helped spur growth in the bank loans, including improvements in asset quality.

A stable outlook means that the international rating agency sees no pressing factors that can warrant either an upgrade or downgrade in the credit ratings of banks. In another positive note, S&P expects the country’s banking sector will remain resilient against external shocks, as well as enjoy the benefits that accompany an improving economy.

Further in its latest report on the Philippines, S&P says that the double-digit pace growth of bank loans would continue to increase this year as a result of the rising resources and banks’ low exposure to bad debts. The credit watchdog estimates that bank loans in the country will increase by 10.1 percent this year against the estimated 10.7 percent last year.

While prolonged economic slide leads to an increase in borrower defaults and credit costs, S&P adds that “this is unlikely in our base case.” Given the brisk business activities in the domestic side, the Philippines is seen unlikely to suffer from the dampened earnings as a result of the impact of a weak external global environment.

S&P says the “stable” outlook is appropriate in the view that banks might find it difficult to post faster profitability growth rate due to the challenges presented by the external economic slowdown.

While significant increase in credit could have increased banks’ exposure to default risks, such risks are not material at the moment, according to the S&P report titled “Philippine Banking Outlook 2013: A Buoyant Economy Spurs Financial Strengthening.