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27 January 2010

Moody’s gives Philippine banks a brighter outlook

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Moody’s Investors Service has raised its outlook on the banking sectors of the Philippines and 11 other countries from “negative” to “stable,” citing improving domestic economies that could redound to the stability of banks, Philippine Daily Inquirer reported.

In a report released Tuesday, Moody’s said the improved outlook reflected its projection of improving credit conditions that will benefit the banking sectors.

“Outlooks for industries represent our view on the likely future direction of credit conditions in those industries,” Moody’s said in the report entitled “Asian Banking System Industry Outlooks: 12 Systems Move to Stable from Negative.”

The 11 other countries whose banking sectors were given stable outlooks were: Australia, China, Hong Kong, Indonesia, India, Korea, Malaysia, New Zealand, Singapore, Taiwan, and Thailand.

The credit-rating agency cited three main reasons for the upgraded outlook: Improving local economic prospects and stabilizing global conditions, improving access to international debt and money markets, and adequate resiliency of banks to cope with remaining macro-and micro-economic risks, having suffered only limited damage during the past 30 months of the financial crisis.

In the case of the Philippines, Moody’s said the likely increase in domestic consumption, boosted by rising remittances, would benefit the banking sector.

Higher consumption prompts businesses to increase production and invest, an activity that may spur bank lending. Increase in demand for loans may also push interest rates up, boosting the profitability of banks.

Moody’s expects the Philippine economy to grow 3 percent this year, faster than its projected one-percent expansion for 2009. “Some ‘political noise’ could emerge in an election year, but is not expected to cause excessive instability,” Moody’s said.

The credit-rating firm gave a “negative” outlook on the Philippines early last year, citing the likely adverse effects of an economic slowdown on the country’s banking system.


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