PHILIPPINE BANKS may see loan losses of up to P100 billion in 2020 due to the financial impact of the coronavirus disease 2019 (COVID-19), according to S&P Global Ratings.
“For full year 2020, we estimate credit losses to rise threefold, by P100 billion, equal to 1.3% of banking sector loans,” it said in a report on Wednesday.
This year, banks will witness low single-digit growth, rising bad loans and credit costs and lower profitability as the country could go into recession due to the pandemic, S&P said.
“The effect on individual banks in the coming quarters will be uneven, largely hinging on whether lenders adopt relaxed accounting and provisioning standards,” S&P Global Ratings credit analyst Nikita Anand said.
The report said loan demand may be buoyed by the corporate sector which needs a liquidity boost during this period.
Amid the current situation, the asset quality of banks will be dependent on the performance of the corporate sector as it accounts for 82% of their total loan portfolio.
“Large conglomerates with their strong business profiles, diversified revenue streams and solid liquidity buffers will likely come through the challenging operating conditions intact,” S&P said.
“Micro, small, and midsize enterprises (7% of the banking sector’s books) and leveraged corporates may face challenges,” it added.
S&P also flagged that lenders’ exposure to sectors like hotels and catering (2% of bank lending), wholesale and retail trade (12%), transportation (3%) and manufacturing (10%) will be particularly high risk. Credit cards and unsecured personal loans from the retail segment are also likely to see higher default rates, it added.
“Secured retail loans such as mortgages and auto loans will not likely be in the first wave of nonperforming assets, but will see some stress as unemployment rises,” S&P said.
The firm noted that the country’s local banks are equipped with “good financial buffers and are entering the crisis “from a position of strength,” thanks to a 14% Tier 1 industry ratio and higher loan loss provisioning, which is seen to help mitigate rising risks in their operating environment.
The Bangko Sentral ng Pilipinas has already implemented an array of regulatory relief measures for the banking industry amid this crisis, including the staggered booking of allowance for credit losses, ditching penalties on legal reserve deficiencies and expanding the single borrower’s limit, among others.
Earlier this week, the central bank has also allowed banks to tap the excess capital from their Basel-III mandated buffers to mitigate the impact of the situation on their operations. — L.W.T. Noble