Philippine banks' average capitalisation levels to fall slightly over the next 12-18 months: Moody's

But access to external capital markets will help maintain capitalisation profile.

According to Moody's Investors Service, the benign asset quality cycle has helped the banks boost their loan loss reserves. Such reserves provide sufficient buffers to withstand our expectation of a moderate increase in new NPL formations.

"But, given the rapid pace of credit growth, our base case is that the banks' average capitalisation levels will fall slightly over the next 12-18 months, yet remain strong. Pre-provision income more than covers anticipated credit losses but is insufficient to maintain current capital levels, given the projected growth of risk-weighted assets. Nevertheless, we note that the banks have strong access to the external capital markets, which will help maintain their capitalisation profile, as evidenced by their successive capital raising exercises over the past few years."