NextGen Day

Fitch Ratings’ rated Philippine financial institutions (FIs) are among the 12 percent of its 141 global rated corporations with positive outlooks for 2022.

The debt rater stated in an email Wednesday that 80 percent of issuers, or 113, have a benign outlook, while 8%, or 11 institutions, have a deteriorating outlook.

“The vast majority of financial institution (FI) sector and subsector outlooks for 2022 are Neutral, reflecting the expectation for a continued, albeit slowing, global economic recovery and improvement in operating environments for banks, non-bank financial institutions (NBFIs), and (re)insurers,” according to the report.

Loan asset quality for banks and NBFIs is projected to deteriorate “as fiscal and policy assistance wane,” according to the research.

“However, we anticipate banks will offset these reductions with higher pre-impairment profitability, the lowering of loan loss allowances, and the reduction of excess capital buffers generated during the epidemic,” it added.

The graded NBFIs’ “strong capital levels and better funding profiles could help cushion a mild increase in credit costs,” according to the report.

“Slowly rising interest rates are also projected to help NBFI operating success,” it stated.

The tightening of monetary policy around the world, according to Fitch Ratings, “will be favorable of life insurers’ returns,” but “the negative impact of historic low rates on profitability will linger for some time.”

This is because low rates have led in life insurers increasing their allocation to higher-risk alternative assets and a structural shift toward more capital-light models.

“With pricing restraint projected to persist, the economic recovery should result in volume growth in non-life business lines.” Claims are likely to normalize, but expenses are expected to climb in line with inflation, according to the report.

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