CreditSights, an award-winning global credit market research firm, reported that the first nine months of the year saw most Philippine banks sustaining first-half gains despite continued challenges.
“Philippine banks generally sustained the positive momentum… as loan growth and asset quality stayed resilient in the face of recent macroeconomic headwinds,” a report from the Fitch Solutions unit said.
The report added that net interest and fee incomes have continued to provide a good cushion for poor trading income, “which continues to be down across the board due to rising rates…” On the other hand, “sharply reduced credit costs had kept profitability back at or near pre-pandemic levels,” it added.
Most banks’ fee incomes remained steady with double-digit year-on-year growth, with the Bank of the Philippine Islands (BPI), which remained flat, and the Philippine National Bank (PNB), which went down by 8 per cent, being the only exceptions.
Credit costs at second-tier banks were also higher on a quarterly basis, but from a low base, while that at first-tier banks were stable to lower in the third quarter.
According to the report, they remained broadly in line with each other at 60 to 66 basis points (bps).
“Coupled with persistently stubborn inflation and the general headwinds to global growth, we expect credit costs to rise and loan growth to be tempered over the next eighteen months or so,” CreditSights said.
The report also provided status updates for seven banks in the Philippines: BDO Unibank (BDO), Bank of Philippine Islands (BPI), Metrobank (MBT), Rizal Commercial Banking Corporation (RCBC), UnionBank of the Philippines (UBP), Philippine National Bank (PNB), and Security Bank (SECB).
Compared to their peers, BDO, BPI, and MBT were reported to have had stronger loss absorptions and capital buffers, more benign asset quality, and larger franchises.
“They benefit from a high exposure to large corporates which should be more resilient in a downturn, as well as their strong deposit franchises which temper the rise in deposit costs, allowing more uplift from the BSP’s rate hikes to their net interest margin (NIM),” CreditSights observed.
“We acknowledge the headwinds facing the Philippines but we see the risks as fairly captured in their current spreads and thus, retain our market perform recommendation on BDO, BPI and MBT,” it added.
CreditSights said it was “fundamentally comfortable” with SECB and UBP “but these banks lack size compared to the first-tier banks.”
UBP’s CET1 ratio dropped to 11.9 per cent during the quarter as its acquisition of Citi’s consumer business in the Philippines officially closed. “We view it as thin but the bank has plans for an equity raise of P20 billion to bolster the depleted capital levels,” the report added.
SECB was moved from “market perform’ to “underperform” and UBP was kept at underperform. An “underperform” recommendation on PNB was also maintained on concerns over its weaker credit fundamentals.
“For RCBC, we view SMBC (Sumitomo Mitsui Banking Corp.) increasing its stake to 20 per cent as a material credit positive as it provides a 400 basis point uplift to the CET1 ratio and strengthens SMBC’s commitment to RCBC as the vehicle for its expansion into the Philippine market,” CreditSights said.
RCBC’s recommendation, meanwhile, was kept at “market perform.”