philippine banking Fitch Ratings said the sector faces potential challenges this year as a flood control corruption scandal continues to hurt economic growth.
“Obviously, the flood event creates downside risks,” Tania Gold, senior director and head of Fitch's South and Southeast Asia bank ratings, said in a webinar on Wednesday. “It is a risk we are looking at, but at present we should not take anything for granted.”
Fitch maintains a “BBB-” rating for the Philippine banking system with a neutral sector outlook and stable rating for the operating environment.
Late last year, massive floods exposed irregularities in flood-control projects, prompting investigations that implicated government officials and private contractors on corruption charges.
The scandal has weakened consumer and business confidence, causing economic growth to decline by 4% in the third quarter, the slowest in four years. The economy grew 5% in the first nine months, below the government's 5.5%-6.5% target.
Despite the scandal, Fitch expects the economy to expand more than 5% this year, which could support high single-digit loan growth and boost bank profitability.
“We are still projecting GDP growth of more than 5% in the Philippines this year, supporting our credit growth in the high single-digit range, which is helping banking sector earnings and profitability,” Ms Gold said.
Outstanding loans at major banks rose 10.3% year-on-year to P13.988 trillion in November, matching the pace of the previous month, which was the slowest pace in more than a year.
Ms Gold said the risk to property quality arose mainly from banks' lending practices rather than the flood-control scandal.
The main concern is how much banks making unsecured loans are making and their appetite for risk, he said, citing the possibility of unrest linked to the scam.
The Bangko Sentral ng Pilipinas previously highlighted the banking sector's continued growth in assets and deposits as support for the domestic economy. — Katherine K. chan