MANILA – Standard & Poor’s Global Ratings (S&P) upgraded the Philippine banking system’s country risk assessment rating by a notch amid improving industry fundamentals and trends.
The Philippine banking sector is now classified under the stronger category of “6” from the previous “7.” The scores range from 1 to 10, with 10 reflecting the highest risk.
“High household consumption, investment, and exports (mainly of electronics, commodities, and services) continue to support economic activity. These strengths will likely be underpinned by strong household and company balance sheets, sound growth in jobs and income, inward remittance flows, and an adequately performing financial system,” S&P said in its latest Banking Industry Country Risk Assessment (BICRA) report on the Philippines.
“The Philippine government is enacting increasingly effective fiscal policies, marked by improvements to the quality of expenditures, still-limited fiscal deficits, and low levels of general government debt,” S&P said.
The credit watchdog said the Philippine economy continues to achieve consistently robust growth.
“In our view, the Philippines’ institutional capacity has started to improve, as seen in its increasingly sustainable public finances.”
S&P also cited the country’s strong external payments position, saying this “forms the cornerstone” of the country’s “credit strengths.”
“We expect that credit losses will remain low, supported by robust economic growth and healthy corporate balance sheets …” it said.
S&P cited other factors that have reduced credit risks in the banking sector, including low exposure to bad debts, non-performing loans ratio standing at a mere 1.7 percent as of end-2017, conservative underwriting standards, and well established credit approval process of banks, as well as low exposure to foreign currency denominated debt.
Other favorable fundamentals that help maintain the soundness and stability of the banking system include rising deposits and other assets, as well as strong capitalization.
As of end-December 2017, the industry’s capital adequacy ratio (CAR) was 15.0 percent, higher than BSP’s requirement of 10.0 percent and international standard of 8 .0 percent.
S&P also cited the establishment of a central credit registry.
“We believe the risks associated with consumer lending have diminished with the establishment of a centralized credit registry and banks’ improving underwriting practices in this segment,” is said.
Bangko Sentral ng Pilipinas governor Nestor A. Espenilla, Jr. said the upgrade reflected a sustained robust performance of the banking system amid a sound regulatory environment.
“The BSP remains committed to maintaining stability and supporting further growth of the banking sector through effective supervision. Looking ahead, we expect the domestic banking system to strengthen further as the BSP continues to refine regulations to make them more responsive to constant changes in industry and economic landscape,” Espenilla said in a statement.
Among the reforms being pursued by the BSP is a legislative measure amending its charter.
One proposed amendment is legal protection to BSP personnel in the course of performance of official duties. With it, the BSP can better perform its banking supervision function by imposing corrective actions against unsound banking practices, without being hampered by lawsuits.
“We hope Congress will pass before the end of 2018 the proposed legislation amending the BSP charter as this will pave the way for an even stronger banking industry,” Espenilla said.
S&P said the central bank has a history of independence and a sound record in keeping inflation low.
“We believe the BSP’s recent monetary policy measures will improve effectiveness of monetary policy transmission and note that a revised BSP charter with added protection for the bank’s officials could further strengthen independence,” it said. (GMA News)
