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MANILA - Credit ratings agency Standard and Poor's said Southeast Asian countries would be able to withstand the crisis emanating from Europe, especially in the the case of the Philippines, which is less affected by declining exports.
S&P has recently upgraded the Philippines' sovereign foreign currency rating from BB to BB+, citing the country's increasing fiscal flexibility, improving debt profile of the government and moderating interest burden. However, In its latest industry report, S&P said these factors did not affect its assessment of the economic risk based on its Banking Industry Country Risk Assessment (BICRA). The agency maintained its BICRA on country in group '7' and the scores on the two components, economic and industry risks, remain flat at '7' and '6'.
But unlike other banking systems in South East Asia, the Philippines banks are not so much dependent on exports as the country's economy is kept afloat by private consumption, which accounts for 70 percent. Europe is an important trading partner of other countries in the region and further slowdowns in exports may lead to lower economic growth, weaker asset quality and higher borrowing costs.
"We believe that the Philippine banking system is reasonably resilient to a slowdown in the developed markets," S&P said.
It said the system is continues to gradually strengthen with the help of stable operating conditions. Non-performing asset ratio peaked has peajed above 27 percent in 2007 and has since delcined to 7.7 percent as of end-September last year. This reflected the restructuring and recovery efforts initiated by monetary authorities.
"We believe reported asset quality ratios will continue to improve, albeit at a slower pace, as stubborn legacy loans, which cannot be rehabilitated, are left behind, "S&P said.
Its assessment, the ratings firm said, is based pnm the stable and modest level of economic leverage, credit-to-gross domestic product ratio that has stayed relatively conbstant 32 percent---one of the lowest in Asia Pacific.
As of the entire region, S&P believes that the retreat of European banks is an opportunity for home-grown players to expand market share and presence, such as the Singaporean and Malaysian lenders. These banks, which are already growing regionally, are well positioned to do this but they "are likely to grow sensibly and manage their risks prudently."
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