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The real estate market could emerge as a risk to the banking sector if prices stagnate, while an increase in bad loans overall in 2021 is unlikely to significantly threaten banks’ profits due to aggressive provisioning by many banks early on, Fitch Ratings said.
“We expect the deterioration in reported asset quality metrics to accelerate in 2021 when the regulatory debt moratorium expires in December 2020, although the impact on profitability is likely to be cushioned by the general preventive provision of banks in the previous year, ”Fitch said.
“[A] a sustained or significant fall in property prices would have broader repercussions on banks ‘balance sheets, given the sector’s high correlation with the economy in general and given that it represents 20% of banks’ loan portfolios ”, Fitch said in a report.
According to the central bank, home prices rose a year-on-year record of 27% in the second quarter, driven by the luxury home segment.
“A moderation in property prices in the Philippines, which have appreciated strongly in recent years, is likely as remittance flows slow and labor market conditions remain weaker than pre-pandemic levels.” Fitch said.
At the end of September, the NPL ratio for the industry rose to 3.4%, the highest level since the 3.42% registered in May 2013. Bad loans increased 60% year-on-year to P364,762 million.
The delinquency rate is expected to reach 4.6% by the end of 2020, according to the central bank.
Fitch Ratings said banks in the Philippines, Indonesia and Thailand will reap the benefits of their “superior” capital positions and leverage compared to their peers in India, China, Vietnam and Sri Lanka.
The banking industry capital adequacy ratio was 15.4% on a standalone basis and 16% on a consolidated basis at the end of 2019, both above the 10% minimum requirement. – Luz Wendy T. Noble
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