S&P upgrades credit rating of Philippine banks

MANILA, Philippines — S&P Global upgraded the credit rating of Philippine banks by a notch with the expected significant improvement in the country’s regulatory environment following the signing into law of the amended charter of the Bangko Sentral ng PIlipinas (BSP).

The debt watcher raised the country’s Banking Industry Country Risk Assessment (BICRA) to 5 from 6 due to the favorable provisions of Republic Act 11211 or an act amending RA 7653 otherwise known as “The New Central Bank Act” signed by President Duterte last Feb. 14.

BICRA scores range from 1 to 10, with 10 reflecting assessment of highest risk.

BSP Deputy Governor Chuchi Fonacier said the central bank is pleased to learn about the quick recognition by S&P of the significant benefits of the New Central Bank Act.

Fonacier said the BSP deems the new law as an important game-changing policy reform.

“The law, which unleashes a new and more progressive era of financial sector supervision in the country, further enhances the ability of the BSP to serve as a pillar of strength for the Philippine economy,” Fonacier said.

The new law affirms and strengthens existing frameworks and practices of the BSP in carrying out its supervision mandate. It supports the application of risk-based principles in allocating examination resources and in setting out capital requirements in banks.

The BSP has long shifted to the risk-based approach to supervision and has crafted policies that are not only commensurate to the risk exposures of its supervised financial institutions, but are also suited to domestic conditions.

“The new law now provides a legal anchor to said approach,” Fonacier said.

The other highlights of the law include the legal protection given to BSP officials in the exercise of the central bank’s regulatory role, as well as the prohibition for lower courts to issue restraining orders to the BSP.

These provisions address the long-standing problem of vulnerability of the BSP and its officials to law suits filed by either erring or weak banks that are penalized or ordered closed by the BSP.

Notwithstanding said limitation in the past, the BSP has established an enforcement framework that promotes consistent handling of supervisory issues including closure of banks.

“We view these amendments as a positive step toward greater independence and more effective implementation of prudent policies and measures by the BSP,” S&P said.

With the new law, the debt watcher said the BSP can better fulfill its mandate of promoting a sound financial system.

Another highlight of the new law is the expansion of the BSP’s regulatory coverage to include monetary service businesses, credit granting businesses, and payment system.

These are consistent with ongoing initiatives of the BSP along with other government agencies to promptly address emerging threats posed by entities outside the banking system.

“We believe the expansion of coverage of institutions under BSP supervision… bolsters BSP’s position to address potential risks arising from the interconnectedness of entities in the financial system,” S&P said.