By Melissa Luz T. Lopez
S&P Global Ratings gave a higher score for the Philippine banking system, citing better growth prospects following enactment of a law strengthening the central bank.
In a statement, the credit rater upgraded the Philippines’ banking industry country risk assessment (BICRA) score one notch to group 5 from group 6, citing “improvement in the institutional framework of the country’s banking system” with enactment of Republic Act (RA) No. 11211 on Feb. 14.
“We believe the amendments to the Bangko Sentral ng Pilipinas charter significantly improve the supervisory powers of the regulator by giving better legal protection to officials,” S&P said in a statement released yesterday.
Key features of the law include providing full legal support for central bank officials and employees as they carry out their mandate of inspecting and penalizing banks and other supervised financial businesses. BSP General Counsel Elmore O. Capule has said this would reduce the risk of such officials being intimidated by possible lawsuits as they carry out their duties.
The law also restores the BSP’s authority to float debt papers, adds P150 billion to the bank’s working capital and broadens supervisory powers to include payment system operators and even money service firms. These are seen to give more powers for the BSP to “address potential risks” in the financial system.
RA 11211 also imposes heftier fines and penalties on erring banks and other financial businesses, as well as culpable officers and employees.
As a whole, local banks are expected to still enjoy 14-15% credit growth this year, matching 2018’s level as demand is tempered by a “higher interest rate environment.”
“We believe the banking system has sufficient capital buffers and coverage against nonperforming assets to withstand emerging risks from currency volatility, higher interest rates, slower growth, and global macroeconomic headwinds,” S&P said.
“We also believe the Philippine banks’ well-established domestic franchise will continue to help them to sustain a strong, stable, and diversified customer deposit profile.”
However, the debt watcher flagged that loan growth will likely outpace deposit growth this year.
The latest BICRA shows a better score on industry risk, with concerns on the institutional framework reduced to “high risk” from “very high” previously. Meanwhile, economic and industry risk trends are seen “stable.”
S&P also affirmed the ratings given to Security Bank Corp. and the state-run Development Bank of the Philippines (DBP), amid better prospects for these lenders. Security Bank’s ratings long -term rating was kept at “BBB-” with a “stable” outlook, while its stand-alone credit profile (SACP) rating improved to “bbb” from “bbb-.”
Meanwhile, DBP also saw its “BBB” long-term rating plus a “positive” outlook in place, alongside a higher SACP rating of “bb+.”
“The upward revision in our assessment of the Philippines banking system results in a higher starting point for rating banks in the country,” the credit rater said.
The Philippines currently holds a “BBB” rating — a notch above minimum investment-grade rating — with a “positive” outlook from S&P, signalling a possible upgrade over the next two years should more reforms get into full swing.
In a separate report, S&P flagged that surprise moves from the United States Federal Reserve could again put the peso and other currencies under pressure this year, together with global trade tensions as the biggest risks.
While the Fed appears to have “dialled back on its language” in terms of future tightening moves, the global credit rater expects the US central bank to merely pause rather than market perceptions of reversing previous tightening moves.
“This dichotomy leaves the potential for market repricing, which could lead to a resumption of pressures on emerging market currencies,” the report read. “Another risk to the economy comes from global trade tensions, which could exacerbate the ongoing regional moderation in the electronics sector.”
Reuters reported that Fed Chair Jerome H. Powell said on Wednesday that policy makers are “in no rush” to change interest rates, amid signs that the US economy appears to be slowing.
S&P has scaled back its Philippine growth projections to 6.4% this year and 6.6% in 2020 and 2021. If realized, these would fall short of the annual government target of 7-8%, even as they would be faster than last year’s 6.2%.