THE PHILIPPINES’ banking regulatory framework favors credit growth, Fitch Ratings said.
In a report released on Tuesday, the Philippines was given a “bb+” rating for its operating environment (OE) score, which assesses the efficacy of regulatory frameworks.
“Our assessment of the efficacy of APAC (Asia-Pacific) banks’ regulatory framework is aligned broadly with their respective bank operating environment score,” Fitch said.
“Strong regulatory frameworks contribute to higher bank operating environment scores in DMs (developed markets), while weaker frameworks in certain EMs (emerging markets) increase banks’ vulnerability in financial performance, which may weigh on their viability ratings.”
The assessment covers rule calibration, supervision, accounting, governance standards, and creditor rights protection across jurisdictions.
Fitch’s scorecard showed that the Philippines’ regulatory framework favors credit growth, is prone to forbearance, and reflects a lack of progress in Basel III implementation.
Countries that score a ‘ccc’ to ‘bbb’ show “key weaknesses stemming from slow implementation of rules, pro-credit growth nature of macroprudential measures, issues in governance, transparency or enforcement, or a tendency towards greater forbearance.”
“Macroprudential measures have been employed to good effect in most developed markets to address issues prevailing at various times, while four EMs — Indonesia, the Philippines, Sri Lanka and Vietnam — tend towards a pro-growth stance through macroprudential or monetary policy measures,” it said.
It said the Philippines lacks loan-to-value (LTV) caps.
“There are no regulatory caps on residential mortgage LTV limits in the Philippines, nor is there an explicit debt-service ratio requirement for retail borrowers. Instead, the BSP imposes an aggregate limit on the banks’ real-estate exposure at 25% of total exposure, and conducts stress tests periodically to ensure that banks’ loss-absorption capacity is adequate.”
Fitch added that the Philippines only allows the standardized approach (SA) for credit risk or minimal use of internal-ratings-based approach.
“The Philippines’ Basel III framework typically aligns with international standards though implementation timelines for certain provisions have differed slightly. The Philippines is not a member of the Basel committee,” it said. “There has not been any announcement on the timeline for the implementation of the revised Basel III SA rules.”
The report also showed that the Philippines needs to increase focus on environmental, social and governance standards in banking.
“Indonesia and the Philippines have made progress but lack alignment with the Task Force on Climate-related Financial Disclosures or International Sustainability Standards Board standards,” Fitch added. — Luisa Maria Jacinta C. Jocson
