S&P may upgrade rating of RP banks

Prospects of an economic recovery following the installation of the new government of President Gloria Macapagal-Arroyo might encourage international credit rating agency Standard and Poor’s (S&P) to change its outlook on Philippine banks to "favorable" from "negative."

Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura is optimistic S & P, aside from changing its outlook, will also not downgrade its ratings of the banking sector.

S&P representative are reportedly coming to Manila this week to access the prevailing political and economic conditions, barely two weeks since the peaceful transfer of power from former president Joseph Estrada to Arroyo.

"I don’t think S&P will change or downgrade the banks’ ratings, but it might change its outlook from negative to favorable," the BSP chief said.

S&P officials were in Manila last November when the political tension was mounting following the testimony of estranged Estrada crony, Ilocos Governor Chavit Singson, that the President accepted bribe money coming from jueteng operations.

The exposé caused the financial and capital markets to plunge to their lowest levels last year, just months after the country’s worst stock market scandal involving Estrada’s close associates unraveled, which almost resulted in a near-irreversible economic collapse as foreign investors packed up their bags and flew to more stable markets.

At that time S&P director for financial services ratings Gavin Gunning said the political uncertainty was threatening to affect the banking sector.

Gunning said the prospects of a spillover in the banking sector could be managed in the short-term but could be damaging if the political crisis lingered.

A number of banks, particularly those named as having been used to hide Estrada’s alleged ill-gotten wealth, such as Allied Bank, Citibank, United Coconut Planters Bank and Equitable PCI Bank, were reported to have suffered heavy withdrawals as depositors were said to be turned off by the banks’ collaboration with Estrada and his cronies.

The BSP had to dispel mounting rumors of a bankrun in these banks, and assured the banking sector it would provide financial assistance to banks requesting for emergency loans.

Equitable PCI Bank majority shareholders led by the Go family, state-pension funds Government Service Insurance System and the Social Security System, sent feelers they wanted to sell their shares.

Subsequently however, the Go family had a change of heart and opted not to go on with the disposal of their shares.

The S&P is also expected to look into other major concerns such as high levels of non-performing assets, potentially inadequate level of loan loss reserves and weakened profitability among banks.