By Joann Villanueva/PNA
MANILA — S&P Global has transferred the Banking Industry Country Risk Assessment (BICRA) of the Philippines to group “5” from group “6” following the amendment of the Bangko Sentral ng Pilipinas (BSP) Charter.
In a report, the credit rater said it believes that the amendment of the Central Bank Act “strengthens the supervisory powers and monetary functions of the country’s central bank.”
In an article, S&P Global said BICRA “is designed to evaluate the strengths and weaknesses of the broader operating environment for banks by assessing economic and industry characteristics in a standardized framework.”
A BICRA score of 1 indicates the lowest-risk banking system while 10 is the highest-risk group.
The S&P said a BICRA analysis takes into consideration influence of government supervision and regulation on the banking system but “excludes the potential for targeted government intervention and rescue of specific financial institutions.”
With the improvement on the country’s BICRA grouping, S&P affirmed its “BBB-” long-term, with Stable outlook, and “A-3” short-term issuer credit ratings on Security Bank and the “BBB” long term, with positive outlook, and “A-2” short-term issuer credit ratings on Development Bank of the Philippines.
The credit rater attributed its latest decision on the two banks’ ratings to the amendment of the Central Bank Act, which gives the BSP better supervisory powers “by giving better legal protection to officials.”
It said since BSP officials now have full protection unless they are finally adjudged to be in willful violation of any charges, then this is “a positive step toward greater independence and more effective implementation of prudent policies and measures.”
In the past, regulators are civilly liable if they fail to apply “extraordinary diligence”, which S&P Global considers to be “onerous requirement.”
It said “while this has not deterred the BSP from executing its supervisory functions, time and resources are required to defend against lawsuits.”
It also noted that the amended Charter prevents any “injunction or restraining order on the regulator except by the Philippines’ two highest courts.”
“These enhancements augment BSP’s powers to exercise its core mandate of promoting a sound financial system, in our opinion,” it said.
Meanwhile, the credit rater forecasts almost flat credit growth for the Philippines at around 14-15 percent this 2019 from last year’s 14 percent, which in turn is a drop from the previous year’s 17 percent.
The higher interest rate is seen to offset domestic credit growth, it said.
It believes that the domestic banking system “has sufficient capital buffers and coverage against non-performing assets to withstand emerging risks from currency volatility, higher interest rates, slower growth, and global macroeconomic headwinds.”
“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,” it said.
“However, the pace of deposit growth is likely to remain slower than loan growth, leading to a gradual increase in the system’s loan-to-deposit ratio, which rose to 79 percent as of end-2018 compared with 75.6 percent as of 2017,” it added.
Relatively, S&P Global is keeping its 6.4 percent and 6.6 percent growth forecasts for the Philippines in 2019 and 2020, respectively.
These forecasts are lower than the domestic output until 2017 due to lagged dampening effect of the 175 basis points increase in the BSP key rates last year and the weak regional electronics sector.
Growth, as measured by gross domestic product (GDP), rose by 6.9 percent in 2016, 6.7 percent in 2017 and 6.2 percent in 2018.
The slowdown in output last year was attributed to the impact of elevated inflation rate on account of higher global oil prices and supply-side factors, with the upticks in the prices of rice and several agricultural products.
