PHL banks on solid ground — S&P

PHILIPPINE BANKS will remain stable despite a weakening peso and global market volatility, S&P Global Ratings said, even as it noted that economic growth will be slower than initially expected over the next two years.

S&P said most Southeast Asian markets are unlikely to be hit hard by rising global economic risks, as reflected by volatile stock markets, skittish bond markets and depreciating currencies.

In this environment, S&P said it sees local banks on good fiscal footing even if peso has lately fared worse against the dollar than its Southeast Asian peers.

“Concerning currency volatility, the Philippines is an exception and has seen the peso steadily devalue due to a rampup of imports for the government’s ambitious infrastructure plans. This has a limited impact on the country’s banking system, which is heavily domestic focused and has a limited foreign exchange position,” S&P said in a report on Thursday.

The peso has depreciated by over eight percent year-to-date and even touched fresh 12-year lows over the past month as it traded above P54 to $1.

However, S&P said that peso depreciation is driven by a widening current account deficit rather than external factors. The current account posted a $3.1-billion deficit as of end-June, coming from a

$133-million gap in 2017’s first half, already matching the fullyear estimate as imports continued to grow by double-digit pace while exports remain slumped year-on-year. The gap is equivalent to 0.9% of gross domestic product.

The Philippines had been posting current account surpluses until a reversal in 2017, although authorities said the heavy importations were in support of increased domestic economic activity.

“For bank ratings across the region, we currently see no immediate effect from market volatility impacting currencies, equities, or other market risks, or from transmission effects on liquidity stemming from corporate or other sectors,” the debt watcher said, even as they noted that domestic events also have a bearing on industry trends.

In May, S&P gave a “stable” outlook for economic and industry risks for Philippine banks and cited “improved credit fundamentals.”

In the same report, S&P also tempered its Philippine growth forecast to 6.5% this year and 6.6% in 2019, from 6.7% and 6.8%, respectively, back in August.

This mirrors downgrades from the World Bank and the International Monetary Fund earlier this month, while the Asian Development Bank pencilled in a lower forecast of 6.4% for 2018.

On Tuesday, economic managers cut their GDP growth forecasts to 6.5-6.9% this year, after last semester disappointed with a 6.3% expansion against 6.6% in 2017’s first half.