PHILIPPINES
Banking Industry Outlook - Stable
Improved economic conditions underpin the change in the Philippine banks’ industry outlook from negative to stable. We expect domestic consumption, helped by robust remittances, a better export outlook, and election spending -- against a backdrop of stabilizing global conditions -- to benefit the banking industry over the next 12 to 18 months.
Some “political noise” could emerge in an election year, but is not expected to cause excessive instability. Our sovereign team projects the country’s real GDP to grow 3% in 2010, much better than an estimated 1% in 2009, but below the 2004 to 2008 average of 5.7%.
The better economic outlook will support earnings in two ways. Firstly, loan demand should increase. Secondly, higher interest rates should benefit the banks’ margins as their loans typically re-price faster than deposits.
These factors should moderate the effects of competition and a potential hike in typhoon-related provisions. The Philippines was hit by a number of typhoons toward the end of 3Q2009. Barring significant shocks, we expect the banks’ loan-loss reserves, capital and earnings prospects to offer reasonable creditor protection over the next 12 to 18 months.
SINGAPORE
Banking Industry Outlook - Stable
The outlook for the Singaporean banking sector has been revised to stable from negative. The change mainly reflects expectations of a more favourable operating environment in the coming 12 to 18 months along with the economic recovery. In 2009, Singapore’s GDP contracted by around 2%. For 2010, Moody’s forecasts 5% growth.
With economic growth, more sustainable loan demand and lower loan loss provisions should follow. Moreover, rising interest rates could benefit Singaporean banks’ net interest margins. As a result, we expect bank asset quality and earnings to gradually improve and return to more normalized levels.
TAIWAN
Banking Industry Outlook - Stable
The change in Taiwan’s banking system outlook to stable is driven mainly by the improving operating environment, stabilizing asset quality, and improving profitability.
A gradual economic recovery will set the stage for better prospects for the banks, with Taiwan’s GDP growth forecast at 4% for 2010. Exports have also rebounded in the past several months thanks to strong orders from China. Therefore, Taiwan banks’ asset quality of the banks in Taiwan is stabilizing.
The NPL ratio for all the domestic banks peaked at 1.63% in March 2009, a marginal increase compared to 1.53% in September 2008, and declined further, to 1.29% in November 2009.
Moody’s also expects pre-provision profits to rise. Net interest margin, which bottomed between 2Q and 3Q of 2009, are recovering as time deposits were re-priced. Wealth management income, is also improving, given the more favourable sentiment in the equity market and the return of consumer confidence. However, we believe that profitability will improve only moderately as interest rates will likely increase slowly in order to support economic growth.
Throughout the financial crisis, liquidity has been strong in Taiwan. Funding will not be an issue for most of the banks, given the industry’s average loan-to-deposit ratio of around 75% and limited loan growth. In addition, the domestic money market and bond market have been in good order, providing banks with the avenues to raise capital.
Several risks remain in the banking system. First, net income of the Taiwanese banks could decline, as they will likely need to set aside more loan loss provisions in order to meet the more stringent accounting standard that will become effective in 2011. At this time, however, the actual impact to the banks remains uncertain given that specific regulations are not yet available.
Second, single borrower and industry concentration remains one of the biggest credit weaknesses. We may see a sudden spike in NPLs, but this will be due to isolated cases.
2010, Sep 10 
0 comments
Email
Facebook
Print
Linkedin
Digg
read more 