S&P affirms RP ratings, outlook stable
abs-cbnNEWS.com | 07/03/2009 4:51 PM
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MANILA - The Philippines' strong external accounts as well as its resilient banking sector should help it weather the economic crisis, according to credit watchdog Standard & Poor's, which affirmed the country's sovereign credit ratings with a stable outlook.
In a statement Friday, S&P said its outlook could be upgraded to postive if the government renews its commitment to generate more revenues and put its fiscal house in order.
By contrast, the outlook may be revised to negative on further deterioration of the government's finances either because of the lack of prudence in spending or a weak fiscal policy.
S&P has retained its 'BB-' long-term and 'B' short-term foreign-currency sovereign credit ratings on the Philippines. It also kept its 'BB+' long-term and 'B' short-term local currency ratings.
It noted the ratings and stable outlook reflect the country's external strength and the relatively low vulnerability of its banks amidst the worsening global economic downturn.
"The ratings derive much support from the apparent resilience of the sovereign's external accounts, whereby an improving liquidity position continues to lower external liquidity risk even against the backdrop of an extremely challenging external environment," S&P said.
Remittance inflows, which rose 2.6 percent in the first 4 months, combined with growing surpluses in service exports and prudent exchange-rate management, ensure a safe level of external reserves, according to S&P credit analyst Takahira Ogawa.
Ogawa said the country's reserves also managed to remain stable despite the recent "drastic contractions in foreign direct investment and portfolio inflows."
With the country facing only a moderate short-term liquidity risk, Ogawa said, "We project its gross external financing requirements at 78 percent of usable reserves plus current account receipts. We also expect its usable reserves to cover short-term debt with residual maturity 3.2x."
S&P's ratings are also supported by the low level of contingent liabilities of the banking sector, given the absence of bank collapses and necessitated government bailouts.
While banks' asset quality and capitalization may decline slightly this year, the credit watcher said this would be capped by the absence of rapid credit growth and comfortable liquidity.
The banking sector's non-performing loans were forecast at 4.2 percent and its capital adequacy ratio at 14.6 percent.
S&P said the national elections in May 2010 may create a distraction to the government's policy-making, and the "resulting delay in passing and implementing fiscal reform measures currently in the legislature could reignite concerns over the medium-term fiscal trajectory."
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