Tighter credit to risky companies seen

MANILA, Philippines - Banks may tighten lending to risky companies should the eurozone crisis affect growth of Asian nations, debt watcher Moody’s Investors Service said in a report released yesterday.

“If the sovereign debt problems hurt economic growth in Asia or cause lenders to tighten standards further, this will impact lending rates to speculative grade companies and may result in deteriorating liquidity for some,” Moody’s said in its Asian Liquidity Stress Index (LSI) report for July.

This means banks may raise interest rates they charge against borrowing low-rated companies, including those in the Philippines, thereby minimizing fund sources for these firms.

Philippine corporations are still under speculative-grade level since their ratings are pegged at that of the sovereign. Moody’s still rates the Philippines Ba2 or two notches below investment grade and still under junk status.

The LSI, which measures the availability of resources for companies within the region, particularly to private corporations, inched up to 16.8 percent in July from 16.2 percent the previous month. The higher the index, the lesser available liquidity there is.

“The July level was the Asian LSI’s fifth consecutive month at the 15 percent to 17 percent level, suggesting that the deterioration in liquidity – which commenced in the fourth quarter of last year – may have reached a plateau,” Moody’s senior vice president Laura Acres said in a statement.

“The index, which increases when speculative-grade liquidity appears to decrease, is at its highest level since September 2010, but is also well below the high of 37 percent posted during the fourth quarter of 2008 amid the financial crisis,” she added.

Moody’s said liquidity in Asia is “generally weaker” than those in developed markets since the region’s capital markets are not that deep.

“Liquidity in Asia is generally weaker than in any other regions partly because the region’s debt capital markets aren’t as mature as those in the US and Europe and because its speculative-grade companies typically rely more on local and regional bank markets for funding,” the credit rater explained.