The Philippine government remains highly supportive of the country’s banking system, but low incomes and poor infrastructure remain as key constraints to the country’s economic growth, ratings agency Standard and Poor’s said.
In its Banking Industry Country Risk Assessment released late Monday, S&P said economic risk in the Philippines reflects the country’s low income level and inadequate infrastructure, which together hamper economic diversification and growth.
“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,” it said.
Despite this, S&P said low income levels pose constraints to the economy’s resilience.
In terms of the banking system, generally poor transparency, weak corporate governance, and inefficient legal infrastructure in the Philippines are seen affecting credit risk for banks operating in the country, it said.
S&P added that relaxed underwriting standards and weak payment culture also heighten credit risk in the industry.
“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,” it said.
Despite this, the ratings firm is still optimistic that industry risks will not have a huge impact on the country’s banking system.
“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,” it stated.
S&P expects banks’ risk appetite to remain manageable as they mainly offer simple and traditional products.
“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,” the ratings firm concluded.