Fitch upgrade a nod to PH positive transformation

Gov. Espenilla says

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. has long expected improvements to the country’s credit standing and that Fitch Ratings’ decision is just a “recognition of the positive transformation that is taking place in the Philippines.”

“The productive capacity of the economy is expanding,” Espenilla said yesterday. “This is making possible higher GDP growth that is sustainable. Inflation is low and stable while the balance of payments remains very manageable. The domestic financial system’s resources and profitability have continued to increase, governance standards and risk management systems have been enhanced, and significant inroads toward financial inclusion is being achieved.”

“We expect this virtuous cycle to continue,” he added.

Fitch Ratings noted the appointment of Espenilla – a veteran central banker -last July as BSP chief which was a nod to “continuity” and that it cemented market confidence in the central bank policies.

“The recent appointment of a new central bank governor from within the BSP has provided continuity and supports monetary policy credibility,” according to Fitch Ratings. “We expect inflation to remain within the BSP's target range of two percent to four percent. A continuation of exchange rate flexibility should help preserve the recent build-up of foreign exchange reserves.”

For his part, Espenilla said the BSP will “remain committed to our crucial mandate of price and financial stability, which are necessary to further accelerate economic growth in the country.”

“At the same time, we will vigorously pursue game-changing financial sector reforms that support economic growth and to ensure that the benefits of a fast- growing economy are felt by more Filipinos,” he added.

The latest credit-rating upgrade by Fitch Ratings of “BBB” from its earlier assigned minimum investment grade of “BBB-“in March 2013, has come following

sustained improvements in the country’s macroeconomic fundamentals.

The “stable” outlook also means that there are no pressing factors that could trigger an adjustment within the near term, as far as the credit agency is concerned.

According to Fitch Ratings, the local capital markets are “less vulnerable to external shocks” compared to other economies in the region, but this is due mostly to limited foreign investor participation in the local securities market, and narrow current account deficit.

“Moreover, the willingness of the BSP to allow the exchange rate to depreciate during 2016 and 2017, when the peso was under pressure partly due to portfolio outflows, has helped to preserve its foreign-exchange reserves. As a result, foreign exchange reserves should continue to cover close to eight months of current external payments at end-2017,” it noted.

Fitch Ratings likewise noted the banking sector liquidity, capitalization levels and asset quality ratios remain healthy. “Loan growth in 2018 is likely to remain in the mid to high teens on the back of robust economic activity,” it assessed. “We expect lending to be broadbased, led by infrastructure construction, productive capacity including property, and households. Continued strong credit growth raises the risk of credit misallocation and asset bubbles, but we believe that the authorities are aware of such risks and prepared to act to curb excessive risk-taking.”

The government Investor Relations Office (IRO) yesterday said financial markets recognize economic and market developments in the Philippines, as shown by favorable pricing for government securities and credit default swaps (CDS). The Philippines’ five-year CDS spread as of December 7 was at 63.83 basis points, better than Colombia’s (BBB/111.35), Indonesia’s (BBB-/95.115), and India’s (BBB-/68.475).