Bank asset risks may rise in the Philippines, according to Moody’s Investors Service, as coronavirus infections resurface, which will weaken economic recovery.
“Thailand, the Philippines, and Indonesia will be hit the hardest in the region as they struggle with elevated numbers of virus cases, heightening uncertainties around the reopening of their economies, which makes banks in the countries the most vulnerable,” it warned in a report released on Tuesday.
The credit rater went on to suggest that the Philippines’ economic recovery will be weak, owing to recurring diseases and tightened containment measures dampening domestic demand.
In 2019, domestic consumption accounted for more than 60 percent of the Philippine economy’s gross domestic product, it underscored. As a result, loans to borrowers in industries that are directly impacted by pandemic-related restrictions, such as wholesale and retail commerce, dining, hospitality, and other tourism-related businesses, are the most vulnerable.
Moody’s emphasized, “restructured loans for SMEs (small and medium enterprises) in the industries susceptible to the pandemic or individuals working in them will be increasingly at the risk of becoming impaired because the borrowers’ debt repayment capacity, which already weakened due to the pandemic in 2020, could be further eroded.”
“If strict containment measures remain in place for a prolonged period, a wider spectrum of businesses can suffer, resulting in more loan losses for banks. Also, in that event, unemployment rates can rise sharply, and this in turn would hurt the quality of retail loans more broadly, as happened in the Philippines in 2020.”
On the good side, the debt watcher stressed the country’s growing young population will aid in accelerating economic expansion and increasing total affluence, resulting in more people using banking services. Governments’ ability to assist domestic labor markets, on the other hand, will be important.
