By Melissa Luz T. Lopez
Senior Reporter

FOREIGN BANKS can still find room in the Philippines to cash in on its growth story, Moody’s Investors Service said, noting that sound operating conditions can accommodate new players despite aggressive lending by existing players.

“Right now, where the Philippines is, there continues to be room for growth for the banking system. While there are good propositions for bank consolidation efforts, there continues to be room to accommodate more entrants in the market,” Moody’s vice-president and senior analyst Simon Chen said in a recent roundtable discussion with the media.

“We are seeing more and more foreign banks being involved in the banking system. If we look at overall banking system, there continues to be healthy competition.”

There were 599 banks in the Philippines as of end-March, fewer than the 602 lenders in business as of end-2016. Mr. Chen said the count declined as some small banks were forced into liquidation by regulators after these were found unviable.

Despite a few closures, branches expanded to 10,679 offices from 10,576 at end-2016, signaling continued growth of the financial system.

Moody’s maintained its “stable” outlook for the Philippine banking system in its mid-year update for Asia and the Pacific, noting that domestic economic conditions are likely to support bank profits and keep asset quality steady over the next 12-18 months.

In May, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. said there were eight new Asian banks looking to enter the Philippines, which would add to nine foreign banks that set up in the country over the last two years.

Mr. Espenilla has said that more global banks see the Philippines as a viable business site, given a huge consumer market, robust overall economic growth and the government’s aggressive infrastructure push that provide opportunities to expand their loan portfolios. These players are searching for new drivers of growth, as prospects in more developed economies in the region moderate.

Mr. Chen added that he expects big banks to see higher non-performing loans as the lenders “refocus” credit lines to the riskier sectors of consumer and small-scale firms, but said that this is unlikely to erode the industry’s generally strong footing.

Bad debts held by Philippine banks accounted for just 1.98% of their total loans as of end-May, lower than the 2.23% share recorded in 2016’s comparable five months, according to latest available BSP data.

In a July 11 report, analysts at BMI Research said they expect bank lending to rise by 17% this year from 2016’s 17.3% increase.

“Our constructive view on the Philippine economy has also been confirmed by improving corporate profitability, and we expect this to have a positive effect on asset quality and profitability of banks over the coming quarters,” their report read, citing the first quarter’s relatively fast 6.4% gross domestic product growth.

Banks’ hefty capital buffers also provide a degree of comfort for local players, as these assure that they have more than enough to compensate for a sudden funding crunch or big-time credit defaults, BMI said.

Universal and commercial banks reported a capital adequacy ratio at 14.38% as of end-2016, which is well above the BSP’s 10% minimum requirement and the international eight percent standard.