S&P seen to follow investment upgrade

BSP scrambles to contain expected surge in liquidity


American banking giant Citigroup expects Standard & Poor’s to affirm Fitch’s recent Philippine sovereign investment upgrade by likewise raising the country’s credit bar.

“We believe S&P may also upgrade soon. We believe two out of three ratings upgrade will represent a strong argument to investors that the country deserves an IG (investment grade) rating,” Trinidad said.

S&P currently rates the Philippine government at a notch below investment grade, but it was the first to hint of an upgrade when it issued a “positive” outlook on its rating.

But the flipside to the rating upgrade is the strong likelihood of a surge in portfolio inflows that may aggravate the risks the country now faces by having too much liquidity, Citi economist Jun Trinidad said in a recent research note.

“This may be the reason why the BSP [Bangko Sentral ng Pilipinas] has been moving urgently to put in place a monetary policy framework and correct existing policy settings that hopefully can address … [the] excess liquidity risk that may come with the upgrade,” Trinidad said.

Apart from the liquidity risks, the BSP will need to do something about the pressures on its balance sheet brought on by the pileup in its special deposit accounts, which now amounts to nearly P2 trillion, the economist said.

The special deposit account is a facility where banks can park their excess funds with the central bank.

As such, Trinidad said, the sovereign upgrade may compel the BSP to ease the SDA rate to 1 or 2 percent. The SDA rate has already been slashed by a total of 100 basis points this year, and now stands at 2.5 percent.

Future BSP actions on the SDA may “bode well for the local bond market, although admittedly, the long end has rallied furiously in recent sessions due to previous SDA cuts, strong liquidity and the fiscal story,” Trinidad said.

Fitch’s surprise move to raise the country’s credit to investment grade supports the strong rallies of local financial markets since late last year, when the anticipation of a rating upgrade in 2013 ran high, Trinidad said.

The rating upgrade also removes a key investment obstacle for some offshore funds that may be mandated to invest only in investment grade paper, he added.

“On the real economy side, an investment grade should make it easier to ‘market’ the economy to real investors. Attracting private proponents, including private funding to PPP [public-private partnership] and other infrastructure projects would not constitute a major obstacle with the investment grade,” Trinidad said.

The cost of investing in the country, including investment insurance coverage, may ease with the higher ratings. The investment grade rating can thus provide “additional spark” to investment-driven growth other than fast-tracking the government’s PPP, he explained.

On Monday, Fitch Ratings also upgraded the credit standing of the country’s biggest banks.

In a statement, Fitch said it raised by a notch the Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) of Bank of the Philippine Island and Banco de Oro.

The two banks now boast of a minimum investment grade of BBB-.

Fitch also raised by a notch the Long-term Local-Currency IDR (LTLC IDR) and Viability Rating (VR) of Banco de Oro to BB+, or a notch below investment grade.

The ratings agency said it raised the support rating (SR) of the following banks following the improved credit standing of the government: China Banking Corp., Rizal Commercial Banking Corp., Security Bank Corp., and Union Bank of the Philippines.

SR dictates the amount of support a bank may get from the government in the event of liquidity crunch.

Meanwhile, long-term local and foreign currency ratings indicate the ability of a bank to meet its obligations to local and foreign investors, respectively. Viability rating indicates an entity’s overall capability to withstand financial stress.

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  • go88

    The coming months will quickly reveal if those upgrades will remain … Let’s see how long an economy that has been directed by the oligarchs towards low domestic value-added trade, transport and condominium building will last …

  • Albert Einstien

    credit upgrades means only we have more dollars now to pay for our debts…thanks to 12 million OFWS & MIGRANTS, as well as BPO sector we now have $84 billions in FC Reserve…’s the CITIZENS not the govt who made the fact the EXODUS of OFW & MIGRANTS is due to GOVT INCOMPETENCE to provide just even a hope to our people…they seek greener pastures abroad and send their hard earned money back sacrificing their families & personal dreams here … is NOT the doing of NOYNOYING govt..perhaps it is by incompetence of govt it’s a blessing in disguise we have an incompetent govt who scare people away from the country & work abroad in MILLIONS a year already since pnoy took office…

    so much ADO & CREDIT GRABBING by pnoy with thin AIR….propaganda, paid surveys & paid publishers..

    Three credit rating agencies are Standard & Poor’s, Moody’s
    Investor Service, and Fitch Ratings. Moody’s and S&P each control
    about 40 percent of the market. Third-ranked Fitch Ratings, which has
    about a 14 percent market share, sometimes is used as an alternative to
    one of the other majors.

    Credit Rating Agencies have made errors of judgment in rating
    structured products, particularly in assigning AAA ratings to structured
    debt, which in a large number of cases has subsequently been downgraded
    or defaulted

    CRAs (including Moody’s, S&P, Fitch) today rely on an
    “issuer-pays” business model in which most of the CRA’s revenue comes
    from fees paid by the issuers themselves ..

    sample : ENRON

    October 16, 2001: Standard & Poor’s affirms Enron’s BBB+ ratings.

    October 25, 2001: Standard & Poor’s affirms Enron’s BBB+ ratings

    December 3, 2001: Standard & Poor’s lowers Enron’s rating to D

    LOOK…in 3 months time BBB to D… reliable could they be ?

    The role of the rating agencies, which are unregulated and consider themselves
    publishers rather than self-regulating professionals like accountants or lawyers..under scrutiny since time in memorial..

    NOW comes ..the HARD TRUTH… is BETTER to RELY on TRUTH than
    PAID surveys & PAID publishers….just LOOK at the PEOPLE are they
    hungry or not , or just simply look at your OWN wallet & SoL
    ……try to compare PRICES of EVERYTHING , CRIME rates, POVERTY index,
    UNEMPLOYMENT rate from 7/2010 and now 3/2013….then ASK
    yourselves…HOW FOOL em I… believe in propaganda….if you want a
    more a painful truth just compare everything since MARCOS 1970’s , CORY
    1986 & NOYNOY 2013…..they made you ZOMBIES for life by sheer

    • johnllander

      Masyadong na-high blood ka sa kakakain ng malulusog na talangka diyan sa inyo. Hinay hinay sa talangka, baka bukas hindi ka na makapagkomento ng komentong talangka.

      • Albert Einstien

        hindi pwedeng kainin ng tulad mo pong yellow zombie ang talangka…mas masarap ang crabs…sayang kung me sarili lang sana kayong pag-iisip we can debate …tsk tsk….lol…

      • johnllander

        Belib talaga ako sa iyo, masyado kayong matatalino. Nakakatalino pala ang mga crabs!!!!

      • Jay Ramos

        Ayaw mo bang umasenso ang bayan natin at puro negative lang ang nakikita mo? Better go to other other countries dahil di mo naman mahal ang bayan mo!

  • amelius23

    We should be in the barometer of foreign investors who will take advantage of a new business climate which our country can offer based on the recent Fitch upgrade. On the other side our country should grasp this opportunity to possible influx of new business opportunities with the govt. properly monitoring the ease of foreign investors in starting an honest to goodness business in Phil. and be cautious about laundered money being introduced as well.

  • mel fernandez

    The upgrade is like a seal of good housekeeping and that would push fund managers elsewhere to take notice of the Philippines. and when the funds come and they are invested, I really hope this is put in the ailing infrastructure and a long term solution to the horribly exorbitant power rates. If this two issues are addressed coupled with providing greater ease in doing business, the results would benefit into the creation of manufacturing jobs that are permanent .

  • Lara_MZ

    And the peso will strengthen and kawawa ang mga OFW families. I don’t like the upgrade. Can we turn back the clock?

    • Erle Czar Mantos

      So, you’d rather like that they’ll stay OFWs forever?

  • amado_guerero

    Now that’s great news…now that’s good governance!!!

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