Moody's downgrades PH banks' outlook to negative amid COVID-19 risks

Moody's Investor Service has downgraded the outlook for Philippine banks from stable to negative due to rising asset risks and profit pressures caused by the COVID-19 pandemic lockdown.

Despite the negative outlook, Moody's expects local banks' capital buffers to remain healthy and strong, with stable funding conditions.

The pandemic-induced lockdown is expected to weaken the operating environment and profitability of banks as economic growth sharply slows.

Moody's anticipates that government support for the banking sector will remain strong, prioritizing systemic stability.

Deteriorating asset quality is a key concern, with potential impacts on profitability due to rising credit costs.

The credit rating agency noted that remittances may decline due to global disruptions, further affecting the economy.

Risks are heightened for loans concentrated in large domestic conglomerates, whose debt payment capacity could deteriorate if the situation persists.

Loans to small and medium-sized enterprises and retail borrowers are also expected to weaken due to limited buffers against stress.

Banks' capitalization is projected to remain stable at strong levels, supported by retained earnings and slower loan growth.

The funding conditions for Philippine banks are considered a strong point, as they are largely deposit-funded with low risks to deposit base stability.