Standard & Poor’s (S&P) said the recently held presidential elections will not have an impact with the Philippines’ investment grade rating despite its warning that the country may face higher risk of political instability under a Duterte government.
In a statement, S&P said the sovereign credit ratings on the Philippines are unaffected by the presidential election.
S&P clarified, however, that its statement was not an official judgment of the Philippines’ rating status. “Only a rating committee may determine a rating action and this report does not constitute a rating action,” it said.
Even so, the ratings giant was generally upbeat in its assessment. “We expect fiscal and economic policies under the incoming administration to remain supportive of the ‘BBB’ long-term rating on the Philippines,” it stated.
This is despite President-Elect Rodrigo Duterte giving few details regarding the shape of economic policies to come under his presidency, it said.
Nevertheless, S&P expects the incoming administration to continue with policies that had contributed to sovereign rating improvements in the past few years.
“Duterte’s track record of more than 20 years in Davao gives few indications that he would embark on economic policies significantly different from the Arroyo and Aquino administrations,” it stated.
Consequently, the credit ratings firm believes the new administration will maintain fiscal policy to keep fiscal deficits to low single digits.
Policies affecting businesses are also likely to be supportive of continued investment growth, it added.
In the near term, however, it warned that businesses in the country might be more cautious about expanding given the uncertainties over the new government’s policy orientation.
Banks face higher credit cost
In addition, S&P warned that Philippine banks’ pursuit of consumer loans could result in higher credit costs, given the inherently higher risk of this segment in a growing economy.
“The ratio of nonperforming consumer loans to total consumer loans has consistently been double that of total NPLs to total loans, although both the ratios have been improving,” it said.
The debt watcher said the country lacks a comprehensive credit bureau, has a weak payment culture, low income levels, and heightening consumer asset-quality risks.
Still, systemwide NPLs have actually marginally declined to 2.2 percent as of December 2015, from 2.4 percent a year ago, in contrast to NPL trends in Thailand or Indonesia.
Nevertheless, it said the establishment of the government-led Credit Information Corp. (CIC) and completion of substantial data collection by early 2017 will likely improve transparency and availability of credit in the consumer loans segment.