THE Philippine banking system is on a par with the majority of financial institutions in the region and the world in navigating the effects of the global health crisis, an international credit watcher said.
In its recent research publication on banks worldwide, Moody’s Investors Service said prospects of an economic upturn and adequate credit reserves support stable banking outlooks worldwide.
In particular, two thirds of banking systems around the world are now assigned a “stable” outlook. This is up from the one fifth at the height of the pandemic in 2020.
The Philippines is among those whose outlook was reverted from negative to stable this year.
Just earlier this month, Moody’s Investors Service put the Philippine banking system outlook back to stable.
Moody’s said the main basis of their action reflects their expectations that a “mild economic recovery” will support the operating environment for Philippine banks. The ratings agency, however, warned that asset risks remain high because of a “prolonged curtailment” of business activity, high unemployment rate and weak consumer sentiment.
Banking system outlooks given by credit rating agencies are forward-looking assessments of fundamental credit conditions that will affect the creditworthiness of banks in a country over the next 12 to 18 months.
A stable outlook means the current rating is likely to hold barring any extreme and unforeseen development.
The most recent research publication of Moody’s shows that most of the banking systems in the region were also given a stable outlook including Indonesia, Malaysia, Singapore and Thailand.
This stable outlook trend extends to the larger Asia Pacific, with China, Hong Kong, Korea, Mongolia, Pakistan, Taiwan, Australia and New Zealand all in the “stable” outlook territory.
Outliers are the banking systems of India, Japan and Bangladesh, which remain with “negative” outlooks.
The banking system of Vietnam is the sole industry in the Asia-Pacific region with a positive outlook.
Despite the stable outlook in most banking systems, Moody’s warned that rising non-performing loan (NPL) ratios and potential under-provisioning are the key downside risks for banking systems worldwide.