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“BANK-credit risk in the
Philippines
has been elevated by a difficult operating environment,
a new and developing supervisory and regulatory
framework and low level of government support,” Moody’s
Investor Service said Tuesday.
Moody’s
senior analyst Richard Lung said in a statement sent out
of Hong Kong that there are other risks involved and
local banks expose themselves to greater lending risks
each year owing to regulatory and supervisory lag.
He was
reassuring, however, in saying that recently Philippine
regulatory authorities have responded through reforms,
and that the lag has narrowed, although more needs to be
done.
Lung
said the risk Philippine banks face with respect to
lending are “potentially high,” and that this was
evident especially after 1997. “In addition to the
moderately high volatility in the country’s business
cycles, credit losses have historically been exacerbated
by weak governance.”
This has
resulted in “asset quality [beginning] to deteriorate
[and] recovery from credit losses [being] prolonged by
deficiencies in the legal system, preventing an orderly
and expeditious resolution of bad assets.”
He added
that reforms adopted after the 1997 regionwide financial
crisis helped improve the environment, but confidence
would be maximized through greater transparency,
formalization of procedures and the institutionalization
of reforms.
According to him, Philippine banks have always been the
dominant financial players, but that they have always
played in a market with very little competition.
“As the
dominant financial intermediaries, they have developed
strong earnings profiles, which have been further
buttressed by the fact that most of the large banks have
universal banking license through which they can offer a
wide range of financial services,” the Moody’s statement
said.
“In
considering external support factors, Moody’s assesses
the Philippines to be a low-support country based on the
relatively low importance of the banking sector relative
to the size of the economy, the uneven history of past
government interventions, and limits on deposit
insurance coverage,” Moody’s said. |
