Major debt watcher S&P Global Ratings upgraded the Philippine banking sector’s credit rating by a notch with the significant improvement in the country’s regulatory environment following the signing of the New Central Bank Act into law.
S&P said in a report on Feb. 27 it raised the Philippines’ banking industry country risk assessment score from ‘6’ to ‘5’ owing to the favorable provisions of the newly-signed law.
BICRA scores range from 1 to 10, with 10 reflecting the assessment of highest risk.
The announcement came less than two weeks after President Rodrigo Duterte signed on Feb. 14 Republic Act No. 11211 or the New Central Bank Act―a landmark policy reform that took years of deliberation in Congress.
“We view these amendments as a positive step toward greater independence [of] and more effective implementation of prudent policies and measures [by the Bangko Sentral ng Pilipinas],” S&P said.
BSP Deputy Governor Chuchi Fonacier said the amendments to the BSP Charter were “important game-changing policy reforms.”
“We are pleased to learn about the quick recognition by S&P of the significant benefits of the New Central Bank Act,” she said.
“The law, which unleashes a new and more progressive era of financial sector supervision in the country, further enhances the ability of the BSP to serve as a pillar of strength for the Philippine economy,” Fonacier said.
S&P said that on top of the favorable regulatory development, the Philippine banking system was expected to withstand various risks such as currency volatility and higher interest rates given sufficient capitalization and a strong domestic franchise that supports growing deposit base.
RA No. 11211 affirms and strengthens existing frameworks and practices of the BSP in carrying out its supervision mandate. It supports the application of risk-based principles in allocating examination resources and in setting out capital requirements in banks.
The BSP has long shifted to the risk-based approach to supervision and crafted policies that are not only commensurate to the risk exposures of its supervised financial institutions but are also suited to domestic conditions. The new law now provides a legal anchor to the said approach.
The other highlights of the law include the legal protection given to BSP officials in the exercise of the central bank’s regulatory role and the prohibition for lower courts to issue restraining orders to the BSP.
These provisions address the long-standing problem of vulnerability of the BSP and its officials to lawsuits filed by either erring or weak banks that are penalized or ordered closed by the BSP.
S&P said with the new law, the BSP could better fulfill its mandate of promoting a sound financial system.
Another highlight of the new law was the expansion of the BSP’s regulatory coverage to include monetary service businesses, credit granting businesses and payment system. These are consistent with ongoing initiatives of the BSP along with other government agencies to promptly address emerging threats posed by entities outside the banking system.