Phl banking sector has healthy base - S&P

MANILA, Philippines - The Philippines’ banking sector is one of those in the Asia-Pacific region which have healthy funding base, allowing them to pay external debts as well as finance economic growth, debt watcher Standard & Poor’s Ratings Services (S&P) said.

According to a report, the local banking system has enjoyed a 0.2 percent decrease in private sector debt from 2010 to 2011. This coincided with a 1.3-percent dip in external borrowings, S&P said in the report titled “Divergent Trends in Banking System Risks Emerge Across Asia-Pacific.”

This indicates that Philippine lenders are borrowing less offshore and are in fact, paying some of their debts, which can only be explained by a high level of funding base.

According to S&P, there was a 16 percent decline in customer deposits to domestic customer loans last year.

“A high level of domestic savings going into the banking system could be enough to fund the growth in private sector debt to GDP (gross domestic product) without putting a pressure on net banking sector external borrowings or customer deposit ratios,” it explained.

Latest BSP data showed savings deposits reached P4.1 trillion in August, up 7.9 percent year-on-year. As of March, the banking system recorded a total of $9.65 billion in debts.

BSP officials have repeatedly said that the banking industry has remained stable and healthy, and has the capacity to finance a growing economy. The central bank even slashed key rates by an aggregate of 75 basis points this year to encourage bank lending.

At 3.75 percent overnight borrowing and 5.75 percent overnight lending, BSP is hoping more would borrow money and use proceeds to finance consumption and investment to drive economic growth as inflation remains stable at 3.2 percent as of September.

S&P said other Asia-Pacific nations’ banking system, such as Singapore, Japan and Thailand, should try to contain their rising private sector debt levels as these will have an impact on the over-all strength of the economy.

“All things being equal, an increasing private sector debt-to-GDP ratio would have the potential to reflect: reduced debt bearing capacity and increased risk of a rapid fall in property prices plus the resultant significant increase in credit losses and pressures on funding metrics,” the debt watcher said.

Despite acknowledging Philippines’ high-funding base, S&P, using its “Banking Industry Country Risk Assessment,” still rates the country “seven” or at “very high” economic riskiness. It ranks at this level together with Indonesia. The only Asia-Pacific country below them is Sri Lanka.

“In an increasingly interconnected global economy, we expect that most banking systems in the region would remain sensitive to the emerging macroeconomic trends in other parts of the world, although to a varying degree, depending on factors such as how open the economy is,” S&P said.