Moody's says outlook in Asean remains stable

MANILA, Philippines - New York-based Moody’s Investors Services said yesterday that the outlook for sovereigns and banks in Southeast Asian countries, including the Philippines remained mostly stable despite the full impact of the global financial crisis.

Tom Byrne, senior vice president and regional credit officer at Moody’s, told a conference entitled “Global Banking & Sovereign Conference” in Singapore that sovereign credit fundamentals in the Southeast Asian region have withstood the global turbulence over the past two years.

“External positions are stronger now, reflecting a robust rebound in exports and resulting in record levels of official foreign exchange reserves for most countries in recent months. Moreover, fiscal deficits have been moderate and the build-up in debt for most governments has been modest,” Byrne said. 

He pointed out that Moody’s upgraded its sovereign credit rating outlook to stable for the Philippines and Indonesia last year but retained the negative outlook for Vietnam and Thailand.

“In Southeast Asia, we have upgraded Indonesia and the Philippines since mid-2009, while the two negative rating outlooks on Vietnam and Thailand were not prompted by the global financial crisis or Europe’s debt problems,” Byrne added.

Moody’s last upgraded the Philippines to Ba3 from B1 in July last year due to its external payments position and resilient banking system amid the global financial turmoil.

A Ba3 rating is three notches below investment grade while a B1 rating is four notches below investment grade. The outlook on the ratings is stable.

Moody’s Standard and Poors, and London-based Fitch Ratings  are closely watching the economic and fiscal developments in the Philippines.

Moody’s officials, who visited the Philippines early this year, upgraded the country’s credit rating outlook to positive while S&P and Fitch retained a stable outlook.

However, these international rating agencies continued to rate the country’s sovereign bonds below investment grade with Moody’s and S&P currently rating Philippine debt at three notches below investment grade and Fitch Ratings at two below.

Moody’s team managing director Bart Oosterveld, on the other hand, pointed out that the balance sheets of governments of most advanced economies have become materially weakened resulting in limited downgrades while the ratings of emerging countries are on the way up.

“Institutional strength has been a significant consideration in recent emerging market upgrades. Rating drivers for advanced economies have focused on the painful adjustment needed to stabilize or reduce the debt burden,” he explained.

Moody’s sees the country’s budget shortfall hitting about 3.9 percent of GDP this year and that the new government would focus on returning to the fiscal consolidation path.

The country’s budget deficit swelled to a new record level of P298.5 billion or 3.9 percent of gross domestic product (GDP) last year eclipsing the previous all-time high of P210.7 billion or 5.3 percent of GDP booked in 2002.

Moody’s pointed out that the debt crisis in Europe would have limited second order effects on Asia’s banks that are mostly funded by domestic deposit.

Moody’s senior vice president Deborah Schuler reiterated that the Asian banking system remains stable despite external developments.

“With the exception of Vietnam and Cambodia, our Southeast Asian banking system outlooks are stable. NPLs (non-performing loans) have peaked at much lower levels than expected. Bank revenues are growing and should continue to do so as long as China’s economic growth does not drop abruptly,” she said.

According to her, the region’s banks are well positioned to cope with the Basel III capital and liquidity requirements, thanks to their strong capital levels, traditional banking franchises and customer deposit funded loan portfolios.