Philippine banks' capitalisation to fall slightly over the next 18 months

But analysts say it's not a cause for concern.

Capitalisation will fall slightly over the next 12-18 months because internal capital generation is not sufficient to support rapid credit growth. Nonetheless, Moody's expects bank capitalisation will remain strong on the back of proactive capital raises, which will help banks maintain their capitalisation profiles.

Here's more from Moody's:

Stress on capital will come from rapid credit growth. The system's pre-provision income more than covers anticipated credit losses but is insufficient to maintain current capital levels given our projected growth of risk-weighted assets.

The adoption of PFRS9, the Philippine equivalent of IFRS9, on 1 January 2018, is another factor that could reduce reported capital metrics. PFRS9 credit loss accounting rules will require banks to recognise expected credit losses rather than waiting for a loss event to occur. This will come in the form of a one-time adjustment to banks' allowance, which is likely to be funded by retained earnings, thus weakening potential internal capital generation in this period.

Banks are nonetheless in a strong position to manage the impact on their capital from these developments, given current benign asset quality and their high provisioning levels. Also, banks have demonstrated strong access to external capital markets, as evidenced by their successive capital raising over the past few years, which mitigates potential capital pressure.