CREDIT RATINGS of Asia-Pacific banks are seen to remain stable until next year, S&P Global Ratings said, in line with its steady outlook for most sovereigns in the region.
“Most sovereign ratings across Asia-Pacific are on a stable outlook, which, in part, underpins our view of continuing rating stability for systemically important banks,” it said in a report.
“Most systemically important banks in Asia-Pacific currently benefit from modest rating uplift because of government support. Recent positive rating actions for some regional financial institutions stem from improved sovereign outlooks in select Asia-Pacific countries.”
The Philippines currently holds a “BBB+” rating with a “stable” outlook from the debt watcher.
S&P Global included the Bank of the Philippine Islands (BPI) in its list of top 60 Asia-Pacific banks, noting its “BBB+” rating with a “stable” outlook, as well as its “strong” business position and “strong” capital and earnings.
It said the region’s financial institutions are likely to see rating stability well into 2025 “despite heightened uncertainty affecting operating conditions.”
“Banks are balancing a range of risks of varying intensity, including potential spillover from tensions in the Middle East, property market woes in numerous jurisdictions, and the overarching risk of an economic hard landing,” S&P Global said.
“Our base case, however, is that most banks will contend with these risks into the new year. About 91% of bank ratings are on stable outlook,” it added.
The credit rater said this outlook stems from its expectation that governments in Asia-Pacific would provide support to their systematically important private banks “in the unlikely event it is needed.”
“Our view on government support in Asia-Pacific differs from that on Western Europe and the US. In our view, bailout, rather than bail-in, is the more likely resolution tool for the unlikely event of a banking crisis affecting Asia-Pacific,” it added.
RATE CUTS TO BOOST LENDING
Meanwhile, S&P Global said in a separate report said that interest rate cuts are seen to boost loan growth in the Philippines.
Latest data from the central bank showed outstanding loans of universal and commercial banks rose by 10.7% year on year to P12.25 trillion in August, the fastest in 20 months.
The Bangko Sentral ng Pilipinas kicked off its easing cycle in August and has delivered 50 basis points in rate cuts since then. It has also signaled further rate cuts moving forward.
In its Asia-Pacific Banking Country Snapshots report, S&P Global said banks maintain good capital buffers and that credit losses will stay near pre-pandemic levels.
“We estimate that major banks in advanced Asia-Pacific economies can comfortably absorb a hypothetical additional 200 basis points in credit losses on commercial real estate exposures.”
It said the risk of a fallout in property markets remains high.
Data from the BSP showed the exposure of Philippine banks and trust entities to the property sector declined to 19.92% at end-June. This was also the lowest real estate exposure ratio recorded in four and a half years or since the 19.84% seen as of December 2019.
Return on assets has also peaked and will gradually decline, S&P Global added. — Luisa Maria Jacinta C. Jocson
