(The
Philippine Star) | Updated May 4, 2013 - 12:00am
MANILA,
Philippines - The Bangko Sentral ng
Pilipinas (BSP) is on guard against the threat of asset bubbles following
succeeding promotions to investment-grade status expected to boost the
country’s financial system.
On Thursday,
Standard & Poor’s Ratings Services upgraded the country’s credit rating to
BBB- from BB+, an investment grade with a stable outlook. This followed a
similar action from Fitch Ratings last March 27.
“With the
sovereign upgrade of the Philippines, it is expected that the (financial)
system will further expand. Thus, the BSP remains vigilant for any asset price
bubbles and/or other vulnerabilities,” the central bank said.
The BSP
mentioned this on a statement accompanying the Status Report on the Philippine
Financial System for the second half of last year, which was released
yesterday.
“Challenges
also remain in the development of the financial markets and the infrastructure
to support such developments to keep abreast with international norms,” it
added.
Local banks
have enjoyed high capitalization and assets, backed by the low interest
environment that are driving them to lend more.
While more
lending is good for consumption and investments, the BSP wants to make sure
lending is done properly, Governor Amando Tetangco Jr. said.
The fear is,
with the low interest environment prevailing, banks may resort to excessive
lending as they seek higher returns without minding credit standards. Default
on loan payments is one recipe for asset bubbles.
So far
though, “there are no emerging signs of asset bubble in the property sector,”
Tetangco told reporters.
In the BSP
report, it was noted that the local banking system boosted its resources by 9.8
percent last year to P8.050 trillion from P7.335 billion a year ago. They also
remained profitable, with net income up 17 percent year-on-year.
Buffer funds,
as measured by capital adequacy ratio, are also sufficient at 17.9 percent as
of September last year. This is comfortably above the BSP-mandated 10 percent
and the minimum international standard of eight percent.
Assets also
continued to be of good quality, with non-performing loans— or those unpaid 30
days after the due date— down to 2.5 percent last year from 2.8 percent
previously.
“What we are
observing is that the financing terms are getting more and more attractive.
That is why we would like to closely monitor this,” he explained.
“Our main
consideration here is a sound risk management or the implementation of sound
risk management of banks,” he added.
It is worth
noting that the sound local financial system was among several factors that
drove S&P to upgrade the Philippines credit rating.
“Despite the
global fragilities, the Philippine financial system continued to deliver a
remarkable performance in 2012 with sustained profitability and stronger
capitalization,” the central bank said in the report.
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