Bangko Sentral ng Pilipinas Governor Benjamin Diokno on Thursday expressed optimism the country will still manage to achieve the most-coveted “A” credit rating by 2022 despite the decline in economic growth in the first quarter by 0.2 percent due to the COVID-19 pandemic.
“This pandemic hit at a time when we are on a roll… The road to ‘A’ might take a backseat because the concern now is how to help the people. [But] we are still confident to achieve the ‘A’ rating by 2022,” Diokno said in an online press briefing.
Diokno said he was disappointed with the first-quarter GDP turnout. But citing historical data, he said the slowest quarter for 2019 was the second quarter (at 5.5 percent), adding “there is hope and we are expecting a strong bounce back in the fourth quarter.”
He said achieving the “A” rating requires focus in pursuing appropriate policies to make the economy back to a high growth trajectory.
Global debt watcher S&P Global Ratings in April last year raised its long-term sovereign credit rating on the Philippines a notch higher to “BBB+” from “BBB” with a stable outlook, citing the country’s above-average economic growth, a healthy external position, and sustainable public finances. The rating was a notch away from the “A” rating category.
The upgrade put the Philippines at par with Mexico, Peru, Thailand, and Trinidad and Tobago. It is also higher than the “BBB” ratings of Italy, Portugal, Hungary, Panama and Uruguay.
The stable outlook reflected S&P’s assumption that the Philippine economy would continue to achieve above-average real GDP growth over the medium term, supporting the sovereign’s credit profile.
The economy in the first quarter of 2020 declined 0.2 percent, a sharp turnaround from the 5.7-percent expansion a year ago, pulled down by the impact of Taal Volcano eruption and the coronavirus 2019 pandemic that stalled global economic activities during the period, the Philippine Statistics Authority said Thursday.
PSA said the January-to-March data was the “first contraction since the fourth quarter of 1998.” It was also a reversal of the 6.4-percent growth posted in the fourth quarter of 2019.
The economy last year managed to grow 6 percent, the low end of the target range of 6-7 percent despite the delay in the approval of the national budget amounting to P3.7 trillion.
“... So there is hope that we may not end up in a recession this year,” Diokno said.
Based on preliminary estimates, the BSP expects economic growth to slow down significantly in 2020. He said the further extension of the enhanced community quarantine measures until May 15 was expected to negatively impact on domestic economic activity.
“The BSP expects a U-shaped growth trajectory with economic activity rebounding vigorously once the ECQ is lifted. A contraction ranging from 1.0 percent to 0.0 percent is forecasted for 2020. Thereafter, the economy is expected to bounce back to 7.8 percent growth in 2021,” Diokno said
Meanwhile, Diokno said the country’s banking system remained sound, well-capitalized and had adequate buffers to withstand the impact of the COVID-19 situation.
“The Philippine banking system will be able to withstand the adverse effects and uncertainties brought about by the COVID-19 global pandemic because it is sound and resilient,” he said.
“Prudential reforms have been put in place to maintain sufficient buffers in times of crisis and ensure business continuity to serve financial consumers while keeping the economy going,” Diokno said.
BSP data indicate that the banking system entered the Enhanced Community Quarantine (ECQ) period in a position of strength with its robust capitalization, good loan quality and higher resources, lending, and deposits.
The capital adequacy ratios (CARs) of universal and commercial banks (U/KBs) on solo and consolidated bases remain above the minimum thresholds set by the BSP at 10 percent and the Bank for International Settlements at 8 percent.
At end-December 2019, the CARs of the U/KB industry improved to 15.4 percent and 16.0 percent, on solo and consolidated bases, respectively, from the previous year’s 14.8 percent and 15.4 percent.
Banks’ risk-taking activities are also supported by adequate capital as it is mainly composed of common equity and retained earnings, the highest quality among instruments eligible as capital.
“Moreover, assets of the banking system reached P18.1 trillion at end-February 2020, which is 8.8 percent higher than the level posted in the same period last year. Deposits also rose by 8.4 percent year-on-year to P13.6 trillion, most of which were deployed to lending to productive activities,” Diokno said.
The banking system’s gross total loan portfolio (TLP), on the other hand, grew by 10.2 percent year-on-year to P10.9178 trillion at end-February this year. Despite higher lending, loan quality remained
satisfactory, as the banks’ non-performing loan ratio stood low at 2.2 percent at end-February this year.
The banking system posted record profits in 2019 as net profit increased by 28.4 percent year-on-year. Banks also maintained sufficient buffers to meet liquidity and funding requirements. The liquidity of U/KBs and their subsidiary banks and quasi-banks was ample as the liquidity coverage ratio (LCR) remained relatively stable and above the regulatory minimum of 100 percent in 2019.
The relatively high LCRs of U/KBs indicate banks’ holding of sufficient high-quality liquid assets to be able to address short-term liquidity shocks, Diokno said.
“Moreover, leaner and stronger outreach backed the banking industry performance. At end-February this year, preliminary data show that bank offices grew to 12,892 on account of new other offices added to the overall network,” he said.
“I believe the banking system is now benefiting from prudential reforms carried out during the last 20 years. Moving forward, the BSP will continue to pursue proactive measures aimed at further strengthening the banking system,” he said.
Diokno reiterated that the BSP was prepared to use its full range of monetary instruments as needed in the fulfillment of its mandate but he stressed that the regulator would always be “data dependent.”