Asia to weather financial storms

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Asia Pacific economies like the Philippines are seen to weather the possible financial challenges that may arise next year.

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In a report titled “Asian credit is stable, despite strengthening headwinds,” ratings agency Moody’s Investors Service said that the overall credit quality of sovereigns, corporations and financial institutions in Asia Pacific will be stable over the next 12 months.

“The Asian region can withstand increased headwinds that are likely in 2014, including slower economic growth in China, the US Federal Reserve scaling back on its bond-buying program, and the potential bursting of asset bubbles,” said Michael Taylor, Moody’s managing director and chief credit officer for Asia Pacific.

Taylor added that balance of payments (BOP) crises are not expected even in countries, which have recently been under greatest exchange rate pressure despite the prospected tapering of the $85-billion a month bond-buying program of the Fed.

The Bangko Sentral ng Pilipinas (BSP) earlier said that it remains watchful of developments abroad, particularly shifts in investor sentiment arising from the future actions of the US Federal Reserve. The central bank also assured that it will continue to watch market conduct to ensure volatilities in the exchange market are not excessive.

However, latest BSP data showed that the BOP surplus of the country suffered a huge drop, plunging to $5 million from the $465-million surplus recorded in September.

Reserve buffers
“Sovereigns have built up large reserve buffers and used flexible exchange rates to absorb shocks, and most banking systems are funded with deposits and have little offshore wholesale funding exposure, with the exceptions of Korea, Australia and New Zealand,” he added.

On possible asset bubbles, Taylor noted that the banking sector has significant buffers against falling real estate prices, owing to generally low loan-to-value ratios and strong regulatory oversight.

“In addition, refinancing risk is manageable for the Asia Pacific corporates that we rate, as most of the maturities are for investment-grade companies that are blue chips in their home or regional markets and will continue to have access to domestic banking systems and local bond markets,” Taylor added.

In October, Moody’s upgraded the Philippines to investment grade rating with a positive outlook. It said that the prospects of the Fed tapering had only a “muted” effect on funding conditions for the country.

In a recent report, the ratings agency noted that the impact of Super Typhoon Yolanda (Haiyan), which the total cost of damage was estimated to about P12 billion, is unlikely to derail the Philippine credit improvement.

“Although the tragic loss of life and the widespread disruption and damage to infrastructure will temporarily weigh on economic activity in the affected areas, we do not expect it to derail long-term growth in the Philippines. Nor do we expect it to undermine ongoing improvements in the sovereign’s credit quality, such as higher-trend growth and fiscal and debt consolidation,” Moody’s said.

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