Standard & Poor’s gives Philippines group ‘7’ ranking in assessment criteria

The Philippines' economic trend is stable.

Standard & Poor's Ratings Services classifies the banking sector of Philippines (Republic of the) in group '7' under its Banking Industry Country Risk Assessment (BICRA) criteria.

According to a release from Standard & Poor’s Ratings Services, other countries in the group include Indonesia, Russia, Iceland, and Ireland.

The ratings firm’s bank criteria uses its BICRA economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating. The anchor for banks operating only in the Philippines is 'bb'.

Here’s more from Standard & Poor’s Ratings Services:

Our assessment of economic risk in the Philippines reflects the country's low income level and inadequate infrastructure, which together hamper economic diversification and growth.

Relaxed underwriting standards and weak payment culture heighten credit risk.

Modest growth in private sector debt and real estate prices in the past several years temper these weaknesses.

Regarding industry risk, the regulator's lack of sufficient power to supervise banks constrains the implementation of regulations, which we view as generally in line with international norms.

However, the industry's risk appetite is generally restrained, given limited loan growth and straightforward banking products.

A high level of stable customer deposits supports banks' funding profiles despite banks having few funding alternatives.

The Philippines' economic trend is stable, in our opinion. We expect the country's strengthening external profile, moderating inflation, and improved external debt position to support the economy.

Also, we believe the risk of a sharp correction or asset bubbles will remain manageable. However, the

Philippines' low income level remains a key constraint to its economic resilience despite a prosperous economy.

We expect that generally poor transparency, weak corporate governance, and inefficient legal infrastructure in the Philippines will continue to impact credit risk for banks operating in the country.

We view the industry risk trend as stable. We believe banks' well-established domestic franchise will continue to help domestic banks to sustain a strong, stable, and diversified customer deposit profile.

We also expect banks' risk appetite to remain manageable because they mainly offer simple and traditional products.

Regulatory standards are broadly in line with international standards--and in some instances more stringent.

However, inadequate legislation and legal protection for supervisory staff weaken the regulator's ability to implement prudent measures.

The government's attempts to amend the legislation have so far been protracted.

We classify the Philippine government as highly supportive of the country's banking system, reflecting our expectation of timely financial support from the government to ensure the stability of the financial system, if needed.