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S&P lists top risks facing budding market banks

Joshua Lao

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International credit watcher S&P Global Ratings listed top risks owing to the pandemic’s impact to banks in emerging markets including the Philippines.

“Banking systems in emerging markets face three common risks in 2021, the expected deterioration in asset quality indicators as regulatory forbearance measures is lifted, a volatile geopolitical environment for domestic policy uncertainty and for a few — vulnerability to abrupt movements in capital flows,” S&P said in its latest report.

Philippine banks’ non-performing assets as a percent of domestic loans was expected to hit 5.5 percent in 2020, growing to 7.7 percent in 2021.

On the other hand, domestic credit losses as part of domestic loans are expected to reach 1.6 percent for 2020 before improving slightly to 1.5 percent in 2021.

“We expect nonperforming loans to continue increasing and the cost of risk to stabilize at high levels as central banks start to remove forbearance measures,” it explained.

According to the credit watchdog, the Covid-19 pandemic and its aftermath will continue to dominate credit conditions in 2021 despite vaccine rollouts as uncertainty remains.

“Widespread immunization, which certain countries might achieve by midyear, will help pave the way for a return to more normal levels of social and economic activity,” S&P explained.
“As the situation evolves, we will update our assumptions and estimates accordingly,” it added.

Bangko Sentral ng Pilipinas (BSP) Policy and Specialized Supervision Sub-Sector managing director Lyn Javier earlier cited the quality of assets in the local banking industry, standing at 3.8 percent in 2020 versus the 2.2 percent level in 2019.

“We believe that we haven’t really seen the full impact of the pandemic and we can see it by the first quarter and second quarter of this year because of the grace period implemented by banks,” Javier explained.

Still, the BSP executive expressed her confidence that the quality of the industry’s loan portfolio will remain within manageable levels as banks continue to increase their provisioning in anticipation of potential losses.

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