Moody’s rethinks outlook for RP and banking industry
By Paolo Luis G. Montecillo, BusinessWorld, and Reuters | 06/26/2009 1:02 AM
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MANILA - Moody's Investors Service yesterday warned it may remove the positive outlook on the Philippines’ "B1+" sovereign rating because of a worse-than-expected drop in GDP growth and tax revenue.
The ratings firm, in releasing its annual Asian Banking System Outlook, also said it expected domestic banks to come under increasing pressure this year, a situation that will be repeated across the region.
For the Philippines, Moody’s Senior Vice-President Thomas Byrne told a briefing the country may not be able to maintain its fiscal discipline amid a sharp drop in government revenue.
He said Moody’s expects the country’s GDP growth this year to come in around 1%, or below its earlier forecast, and that the government’s dependence on foreign borrowing made it vulnerable to a weakening in the peso.
"What looked clear earlier this year has become fuzzy," Mr. Byrne told a media briefing in Singapore, referring to Moody’s decision in February to affirm its rating and outlook for the Philippines.
The firm cut its Philippine growth outlook to 2% in April from 3.3% in February. The government’s several times reduced goal is 0.8-1.8%.
In its regional banking outlook, Moody’s said "In the Philippines, loan growth will slow, but probably stay positive, while falling interest rates are placing additional pressure on bank margins."
"Furthermore, the challenges in the economic and financial markets will depress bank earnings and pressure asset quality, but no significant credit losses are expected," it added.
The firm said "credit stress in the Philippine banking system has been muted so far in the current financial crisis, although banking fundamentals are experiencing some pressure in light of the economic slowdown in the country."
As loan growth softens and margins decline, the firm said the challenges the banks face would increase — a situation that provides sufficient basis for the negative outlook for the sector over the next year and a half.
Moody’s, however, praised improvements in the regulatory framework, which have so far helped Philippine banks avoid the brunt of the global recession’s impact.
"Compared to the early 2000s, the operating environment has improved," it said.
In May, Moody’s placed nine Philippine banks in a list of Asian financial institutions facing credit rating downgrades due to government incapacity to provide financial aid or support in case such is needed.
Moody’s negative outlook extended to other banks in the region as it expects weakness in the global economy to lead to a rise in bad debts.
"The slowdowns are clearly making themselves felt on the performances of banks in Southeast Asia and India," Jerry Chien, managing director for Moody’s Financial Institution Group in Asia Pacific, said in a statement.
According to powerpoint slides provided by Moody’s, low inflation will allow monetary easing in most Asian countries while external positions will likely remain strong and resilient.
The firm, however, also said India and Malaysia’s large government deficits were not sustainable over the medium term, although their strong external positions reduced financing risks.
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