AsPac creditworthiness still strong – Moody’s

MANILA, Philippines - Creditworthiness of Asia-Pacific countries is seen to remain unaffected by the current financial market volatility given the region’s resilient growth, strong finances and buffers, and stable banks, a debt watcher yesterday said.

“Sovereign ratings in the region are likely to withstand the effects of the moderation in global demand and the volatility in the financial markets,” Moody’s Investors Service said in its 2013 Mid-year Sovereign Update.

Metrics gauging growth, budget and external performance are “well-positioned” to absorb shocks than they were before the global financial crisis in 2008, the New York-based agency said.

In addition, the “stable” banking system “will not likely undermine” sovereign credit ratings over the near-term.

The Philippines long-term foreign sovereign rating is at Ba1 under Moody’s metrics, a notch below investment-grade. The status has a stable outlook, suggesting no possible movements in the near future.

In the report, the debt watcher said the Philippines is just one of five countries in the Asia-Pacific region that have improved significantly in at least one of the following gauges: growth, fiscal and external vulnerability trends.

The country is expected to generate better performance in fiscal discipline and robust buffers, while growth trend has remained stable. The four other nations were Fiji, Indonesia, Papua New Guinea and Vietnam.

Overall, fast growth in the region than in the rest of the world “has not changed” with Mongolia and Papua New Guinea “standing out” with growth of four- to five-percentage points higher than pre-2008 levels.

In state budgets, Moody’s noted “wider” deficits but mainly due to the need to pump prime economies amid slowing growth abroad. Asia-Pacific’s average debt stock is also seen to inch higher to 49 percent of economic output from 47 percent.

“Overall, Indonesia and the Philippines have featured the biggest improvements in their percentile ranking” in fiscal balance, Moody’s said.

“High economic growth, narrow fiscal deficits, and exchange rate appreciation have combined to lead to debt consolidation in both countries and have contributed to the upward trajectory in their ratings,” it explained.

In terms of foreign buffers, the Philippines, together with Fiji and Vietnam, also fared the best, with Mongolia and Papua New Guinea at the other end of the spectrum.

Aside from good economic metrics, most Asia-Pacific lenders also continue to enjoy healthy balance sheets, led by those in the Philippines which have a “positive outlook” on profitability and credit quality under Moody’s.

Five banking systems in Hong Kong, India, Vietnam, Singapore and Mongolia are however on the negative watch, although this is not expected to translate to sovereign credit rating downgrades.

“The fact remains that banks in these systems have strong financial metrics that explain why we continue to assign them the highest average ratings, both on stand alone and supported bases, compared to all banking systems globally,” Moody’s said.