US-based international debt monitoring firm Fitch Ratings said recently that banking institutions in the Philippines – as well as the other emerging markets of Sri Lanka, India and Vietnam – can expect to see a gradual but stable rise in profitability in 2016, widely regarded as an indicator of the nation’s ameliorating economic status.
Fitch also stated that “a continued shift towards higher-yielding consumer and middle-market loans should partly offset sustained competitive pressure on net interest margins; these segments are typically riskier than corporate loans, but credit costs are likely to remain low in a favorable economy.”
Any hike in US interest rates would inevitably hang heavy on large local trading gains, yet the more influential institutions here in the Philippines are considered to be in line for high core capitalization.
“Prospects for large trading gains are dim as US interest rates normalize, but higher domestic policy rates – if they move in tandem – could help to relieve downward pressure on net interest markets. More demanding capital requirements for domestic systemically-important banks will be phased in from 2017, and are likely to apply to all Fitch-rated banks to some degree, as they are each among the 10 largest banks in the Philippines.”
The monitoring firm went on to say that the Bangko Sentral ng Pilipinas (BSP), or the Central Bank of the Philippines, have indicated the imposition of a higher minimum common equity tier one (CET1) ratio of between 10-11% by 2019, which sees a notable increase from today’s 8.5% ratio.
Fitch also said that, of the negative outlooks for the regional banking sectors, the blanket now covers Thailand, Malaysia, China and Indonesia, as well as Mongolia, primarily due to economic obstacles being faced in China such as lower costs of commodities and the currency pressures related to such factors.
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