HSBC very bullish on Aquino regime

British banking giant HSBC has upgraded its internal rating on the Philippines for the first time in a long while and said it expected an investment-grade rating from global credit watchdogs under the term of President Aquino.

In a briefing on Tuesday, HSBC Philippines president Tony Cripps said HSBC, in its own internal risk assessment, recently upgraded its rating on the Philippines. Because the rating system was much different from those used by rating agencies, Cripps said he could not give the technical details. But the rating, he said, was for the purpose of determining the most efficient use of capital across HSBC, which suggested a vote of confidence on the country as among its priority markets in the region.

“We’re much more stringent than rating agencies,” added HSBC Philippine managing director and head of global markets Wick Veloso, noting that it had been a long time since the Philippines was upgraded in the bank’s internal rating and the last action was even a downgrade.

Veloso said the Philippines’ dream of an investment grade was feasible especially given that it was only a notch away from this based on the scale of one of the three major global credit watchers.

The Philippines is rated a notch below investment grade by Fitch Ratings and two notches below investment grade by both Moody’s and Standard & Poor’s. Recent upgrades were attributed to a combination of improved revenue collection and fiscal discipline adopted by the new administration.

Veloso said he was unfazed by S&P’s recent report merely maintaining a “stable” rating on Philippine risk, noting that the rating agencies might need some more time.

“But the market always moves ahead of the rating agencies,” Veloso said, noting that once there was a significant tightening in the credit default swaps (CDS) on Philippine bonds, he said this could be a clue that another upgrade would happen.

CDS spread on the Philippines’ five-year bonds were currently trading at around 130 basis points, at about the same level as that of investment-grade Indonesia, Veloso said.

Meanwhile, the HSBC officials said the second half would likely be a challenging period. Based on the HSBC emerging markets index, growth was slowing, which meant that central banks across the region might slow down on their monetary-tightening cycle.

In the case of the Philippines, Veloso said any further move by the central bank would likely be through a further reserve requirement increase than any further adjustment in the overnight borrowing rate, which is at 4.5 percent.