Philippine banks are less prone to a possible spillover from a deteriorating European debt crisis, Moody’s Investors Service said in a note released Monday.
In a 15-page note, “Assessing the Exposure of Asia Pacific Banks to the Risk of Deterioration in the Euro Area,” Moody’s lumped the Philippines with Indonesia in the “less exposed” category.
“Financial contagion risk to the Philippines is limited,” the agency noted.
The Moody’s note covered 16 banking systems in the Asia Pacific region, their exposures to extreme distress in the euro debt crisis assessed based on their dependence to external funding, as well as the significance of European banks to them.
The assessment also covered the economy’s dependence on exports, overall challenges faced by the banking system, and government or central bank capacity to support banks in times of need.
Moody’s noted that the Philippine exposure was low in terms of Philippine banks’ dependence on external funding, overall challenge faced by the banking system, and limitations against government to provide liquidity.
In terms of Philippine dependence on exports and the influence of European banks on its banking system, Moody’s classified such risks as medium.
Philippine banks’ foreign currency loan-to-deposit ration was at the 24 percent comfort zone, which shows an abundance of deposits, the credit rating agency noted. A warning on slower exports At 5 percent of gross domestic product, euro zone banks claims against the Philippines are relatively small, Moody’s said.
But Moody’s warned that the sharp decline in exports last year augurs a worsening debt-servicing capability of Philippine exporters.
Countries included in the “more exposed” category included Australia, New Zealand, Korea, and Vietnam due to high refinancing risks, potential spikes in both borrowing and hedging costs, undiversified economy, and weak financial system
The countries that Moody’s bunched under the “exposed” category included Cambodia, China, Hong Kong, India, Japan, Malaysia, Mongolia, Singapore, Taiwan, and Thailand.
Banks in Asia Pacific performed remarkably well in the more than three years of financial turmoil, including the ongoing European sovereign and banking crisis, according to the credit rating agency.
“Although of a modest magnitude, some evidence that the economies and banking systems of Asia Pacific are not decoupled from the euro area crisis has started to emerge,” said Moody’s.
It noted the exports slowdown in Asia Pacific, the general weaknesses in Asian currencies, and the increasing evidence of European banks selling their portfolios of Asia-Pacific-related loan books since the second half of 2011.
“Our central scenario is that this resilience will generally persist. However, we observe that the risks to that scenario have increased, warranting a closer examination of how bank creditors could be affected under tail risk developments,” Moody’s added. — VS, GMA News
There are no comments yet