The country’s financial resilience is also frail due to low-income levels.
Even as credit rating agency S&P upgraded the country risk assessment of Philippines amidst improved credit fundamentals, the country’s banking system still faces high credit risk due to weak payment culture and rule of law.
The credit rating agency noted that the government’s efforts to amend legislation to support banking reforms has so far been protracted, further aggravated by lack of legal protection for the organisation’s supervisory staff that could compromise regulator ability to implement prudential measures. The Philippines’ resilience was also weak due to the country’s low-income levels.
However, the establishment of a centralised credit registry and credit bureaus as well as enhanced underwriting practices are testament to the country’s improving economic fundamentals.
“We expect the quality of consumer loans to improve due to better availability of data on the credit history of borrowers. The non performing assets in the banking system remain low indicating an upswing in the credit cycle amid robust macroeconomic conditions,” S&P added.
Philippine banks are also well prepared for the adoption of new financial reporting standards as lenders have adequate capital buffers (common equity tier 1 ratio of about 14%) and provision coverage ratio of 120%.
This puts the local banking system at par with those of Brazil, Brunei Darussalam, China, Colombia, Hungary, Oman, Thailand, Trinidad and Tobago and Uruguay.
Photo from Manilaspirit - Own work, CC BY-SA 3.0
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