Phl ratings upgrade not likely to impact on bank rankings

Manila, Philippines -  The latest upgrade on the Philippines’ sovereign rating will not necessarily translate to improved ranking of local banks in a separate scale used by debt watcher Standard & Poor’s Ratings Services (S&P).

The upward revision on the Philippines’ long-term foreign-currency rating to one notch below investment grade two weeks ago will not have an “immediate impact” on the standing of the country’s banks at the S&P Banking Industry Country Risk Assessment (BICRA), credit analyst Ivan Tan told The STAR.

“The upgrade of the Philippine sovereign ratings was driven by improving fiscal flexibility and government debt profile and does not impact our assessment of the banking system,” Tan explained.

BICRA, the credit rater’s website said, is a criteria used by S&P “to evaluate and compare global banking systems” covering “the entire financial system of a country while considering the relationship of the banking industry to the financial system as a whole.”

Last November, S&P upgraded Philippine banks’ rankings to “seven” from “eight” in a scale of 10 with one characterized as “lowest risk banking systems” and 10 as “highest risk.”

“Revision of Philippine bank ratings would depend on a number of factors,” Tan said.

He said there is a need to address the Philippines’ low per capita income and miniscule investment.

A report published on June 4 pointed to persistent problems such as inadequate infrastructure, corruption and bureaucracy. There was however some improvements, Tan noted, proof that the present administration is already addressing the challenges.

“We expect the main growth factors in 2012 to be domestic private consumption and, to a lesser extent, investment. Further out in the forecast period, we expect a gradual pickup in growth to 5.2 percent to six percent, stemming from the increased macroeconomic and political stability and changes in economic structure,” the report explained.

Specific problems on the banking industry, however, remain with S&P noting of “relaxed” lending and underwriting standards, high level of foreclosed assets, a “weak payment culture” in debts, and an “overcrowded” banking sector in the capital.

The report added: “We observe significant disclosure gaps in banks’ quarterly and semi-annual financial statements, characterized by incomplete notes to the accounts and lack of details for several key balance sheet items.”