PH banks ‘well-equipped’ vs corporate debts fallout
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Mon, 30 Sep 2019 16:29:43 +0000
Corporate debts in the Philippines are high but banks can handle if it escalates to any conglomerate fallout, International credit ratings agency Moody’s Investors Service said.
In its Sector In-Depth report titled “Banks — Asia-Pacific: Risks from leveraged corporates grow as macroeconomic conditions worsen” released on Monday, the debt watcher noted high levels of corporate leverage across Asia-Pacific, which were boosted by a prolonged period of low interest rates.
It added that the buildup of corporate leverage in the region has slowed, but a large share is held by corporates with elevated levels of debt.
In the Philippines alone, Moody’s said the country “has one of the highest concentrations of debt held by corporates with debt/Ebitda (earnings before interest, taxes, depreciation), ratios of more than 4 because of a small number of large conglomerates with complex organization structures, including multiple operating subsidiaries across industries and cross-holdings in corporates.”
That said, the credit rater warned that worsening macroeconomic conditions in 2019-2020 may increase the risk of defaults among corporates with elevated levels of debt, which is a credit negative for banks.
“The risk is that distress at a few weaker entities could escalate to group-level fallout,” it added.
While pointing out that a default by a large conglomerate would have a significant impact on the banking system, Moody’s said the likelihood of such an event occurring in the Philippines is low because financial performances of these groups remain healthy.
“The high capital ratios of rated banks in Hong Kong, the Philippines and Singapore under stressed scenarios also suggests that banks in these systems are relatively well equipped to absorb any fallout from high corporate leverage,” it said.
The credit watchdog noted that its assessment was based on its stress test on the banking industry of the said countries.
“Under our stress scenario, capital ratios will decline by 1 percentage point to 4 percentage points in most economies, which will still leave banks with sufficient buffers. Indian banks are the most vulnerable,” it concluded.