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March 27, 2008 |
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* Moody's Releases First Philippine Banking Sector Overview Reforms to the Philippine banking system undertaken since the Asian currency crisis have helped to improve the regulatory and supervisory system, but confidence would be further enhanced by greater transparency, formalization of procedures and institutionalization of reforms, says a new report from Moody's Investors Service. "Bank credit risk in the Philippines has been elevated by a difficult operating environment, a new and developing supervisory and regulatory framework, and low level of government support," says Richard Lung, a senior analyst and author of the report, who also notes that proposed legislation, which would correct for some of the deficiencies in the supervisory framework, is pending in the Philippine Congress. "These challenges outweigh the benefits derived from the dominant role of banks within the financial system, and also help explain the low intrinsic financial strength and deposit ratings of the Moody's-rated Philippine banks," says Lung. The report is the first in a series of overviews on banking systems throughout the world, and is designed to complement Moody's banking system outlook reports by serving as reference guides to key structural factors that are reflected in Moody's bank credit ratings. The report notes that Philippine banks have historically faced little competition from the domestic capital markets or from non-bank financial institutions. As the dominant financial intermediaries, they have developed strong earnings profiles, which have been further buttressed by the fact that most of the large banks have universal banking licenses through which they can offer a wide range of financial services. However, banks in the Philippines are exposed to potentially high credit losses (as was experienced following the Asian financial crisis) due to their operating environment. In addition to the moderately high volatility in the country's business cycles, credit losses have historically been exacerbated by weak governance. As a result, once asset quality has begun to deteriorate, recovery from credit losses has been prolonged by deficiencies in the legal system preventing an orderly and expeditious resolution of bad assets. In considering external support factors, Moody's assesses the Philippines to be a low-support country based on the relatively low importance of the banking sector relative to the size of the economy, the uneven history of past government interventions and limits on deposit insurance coverage. The report, "Banking System Overview -- Philippines", can be found at http://www.moodys.com/ |
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