Lenders in the Philippines may see billions in soured loans due to the impact of the coronavirus disease 2019 (COVID-19) pandemic, according to S&P Ratings.

Still, despite headwinds, the debt watcher said adequate capital buffers will be banks’ safeguard versus the crisis.

“We currently estimate that COVID-19 and related market stresses could cause an increase to NPAs (non-performing assets) of $3 billion (an additional 1.8% versus gross loans) and credit losses of $2 billion (an additional 55 basis points versus gross loans),” S&P Global Ratings credit analyst Nikita Anand said in a report.

In the report, S&P said the credit outlook for the Asia Pacific region will depend on the spread and duration of the virus, the direction of lockdowns and restrictions, as well as the credit and dollar swap spreads sought by borrowers and counterparties by the market.

Ms. Anand said the lending business of local banks will feel spillover effects from the damage to the trade, tourism, private sector investments and consumption sectors.

Luzon, which has been on lockdown for more than a month, accounts for about 70% of the country’s economic output. Business disruptions in the area are expected to take a toll on consumption.

A study by the National Economic and Development Authority expects that the transport and tourism industry will be hit hardest by the pandemic, with estimated gross value added losses of P77.5 billion given travel bans. The sector is also seen losing around 33,8000 to 56,000 jobs.

Earlier in March, Lyn I. Javier, managing director for policy and specialized supervision of the Bangko Sentral ng Pilipinas (BSP), warned the virus could affect banks, especially those with significant exposures to industries hit by the pandemic.

Amid the crisis, S&P said banks’ saving grace will be their capitalization.

“We believe Philippine banks’ good capital buffers, with an average tier-1 capital adequacy ratio of about 14%, will help them manage the rising risks,” Ms. Anand said.

She added that stimulus packages and liquidity measures unveiled by the government and the BSP may “cushion the impact to affected borrowers”.

More than half or P14 billion of the first stimulus package worth P27.1 billion unveiled in March was allotted for the tourism sector.

The BSP, for its part, has reduced the reserve requirement ratio of universal and commercial banks by 200 basis points to 12%. It has likewise lowered the minimum liquidity ratio for stand-alone thrift, rural and cooperative banks to 16% from 20% until year-end to give them a liquidity boost amid the situation.

Aside from this, the central bank last week also said lending to micro, small and medium sized enterprises will now be considered part of banks’ compliance with reserve requirements.

S&P expects the Philippine economy to contract by 2% this year, a sharp revision from the 4.2% growth estimate it gave in March as well as the six percent baseline forecast it penciled in December before the pandemic.

If realized, this would be worse than the -1% to flat growth estimated by the country’s economic managers as well as the 5.9% expansion in 2019. The government initially targeted a growth of 6.5% to 7.5% for this year before the crisis happened. — Luz Wendy T. Noble