International credit watcher Standard & Poor’s Global Ratings (S&P) sees little risk in the country’s banking sector, which remains strong in capitalization and liquidity largely on diligent and strong monitoring by the Bangko Sentral ng Pilipinas (BSP).
S&P lauded the central bank’s “strengthened oversight” on Philippine banks, coupled with high liquidity, banks’ limited linkages to global markets and modest growth in private-sector debt and real-estate prices, which contributed largely to the system’s stability in recent years.
The observation came after S&P’s recent credit-rating assessment of the Philippines, wherein the credit watcher affirmed its “BBB” rating for the country with a “stable” outlook.
While S&P said the country’s strong external position with rising foreign-exchange reserves and declining external debt, the ratings agency also mentioned issues surrounding the new administration and said the predictability of policy-making in the Philippines has somewhat diminished in their view.
The Philippine banking sector got a “7” in S&P’s bank industry credit risk assessment, with 10 having the lowest risk and one having the highest risk.
This is because the positive sentiment of S&P on Philippine banks’ high liquidity and stable numbers are slightly offset by the Philippines’s low income level and limited legal protection to the regulator.
S&P also extolled the central bank’s “ability to support sustainable economic growth,” while trying to mute the negative impact of recent economic or financial shocks.
“This reflects the central bank’s sound record in keeping inflation low and its history of independence,” S&P said.
“We believe the BSP’s new monetary policy measures, such as the new interest-rate corridor, supported by implementing term deposit auctions, reforms to the reverse repo auction mechanism, and the issuance of central bank bills will improve the effectiveness of monetary policy transmission,” it added.
Data from the central bank shows the Philippine banking system with a total of P12.54 trillion assets at the end of June this year, with a growth rate of 12.22 percent from the previous year.
The BSP, meanwhile, posted a net income of P10.95 billion in the first seven months of 2016, reversing the previous year’s net loss of P3.55 billion net loss.