Asia-Pacific banks warned against credit growth-related stress

Philippine banking sector's exposure to failure due to excessive lending remained low, according to Fitch.

However, it warned of rising credit growth-related stress in Asia-Pacific.

In its latest report on Asia-Pacific, Fitch said that while credit growth is slowing down in advanced economies, it has been accelerating in Asia-Pacific by a pace fast enough to cause concern.

Given enormous liquidity enjoyed by banking sectors in Asia-Pacific countries, including the Philippines, Fitch said there must be some forms of control on credit growth in the region to ensure this was kept within prudent limits.

“Fitch believes that above-trend credit growth in tandem with booming property and equity markets remains the most reliable early-warning indicator (of system-wide risk for banks), particularly in countries where regulatory forbearance is prevalent,” Fitch said in the report titled “Asia Pacific's Banks Rising Leverage Highlights Concerns.”

The credit watchdog said the latest macroprudential index (MPI) for the Philippines stood at “1,” which indicated low risk of system-wide stress preceded by rapid credit growth and asset price bubbles.

An MPI of “2” indicates moderate, while “3” means high risk.

Asia-Pacific countries that obtained the same comfortable MPI index for their banking sectors as that of the Philippines were Malaysia, Taiwan, Thailand, South Korea, Japan, India and New Zealand.

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