Moody’s sees rise in default rates for Asia’s corporate entities

Moody’s Investors Service expects an increase in default rates among corporate entities in Asia due to the adverse impact of the crisis in the euro zone.

The debt woes in Europe is seen to drag the income of some Asian export firms and heighten default risks for some corporate entities holding euro-denominated bonds.

In one of its latest reports, the credit watchdog said an increase in default rate among Asian corporate bond issuers “reflects a faster-than-expected deterioration in the credit quality” as the prolonged debt crisis in the euro zone fuels instability in the credit market.

For this year, the default rate, which the credit firm measures using its own model called the Moody’s Credit Transition Model (CTM), is now estimated at 5 percent for Asian corporate bond issuers. In end-2011, the default rate is zero, Moody’s said.

The latest projected default rate for this year is higher than the previous forecast of 2.3 percent.

Moody’s said the increase in the forecast takes into account the prolonged debt woes in the euro zone that has dampened capability of some Asian corporate entities to service their own obligations.

A 5-percent default rate translate to about four corporate entities defaulting, Moody’s said.

“The European sovereign crisis and the lackluster US recovery have prevented a return to stability in the credit market,” Moody’s said.

But analysts said corporate bond issuers from the Philippines would remain capable of servicing their liabilities amid a favorable economic climate in the country.

Should some Asian corporate entities default, analysts said, these would most likely be those with huge exposure to the euro zone.

The Philippine business sector is enjoying a favorable climate. In the first quarter of the year, the economy grew by a surprising rate, economic managers said.

The BSP officials said business confidence in the Philippines remains in the positive territory, as more firms maintain a positive view on their profitability this year.

The Philippine economy grew by 6.4 percent in the first quarter from a year ago, faster than the 4.9 percent registered in the same period last year. It was also the second fastest growth rate in Asia during the period following China’s 8.1 percent.