39th PBC Wilhelmina Manalac

8/14/2019 39th PBC Wilhelmina Manalac

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WILHELMINA C. MAALACManaging Director, International Sub-Sector

39thPhilippine Business Conference and Expo22 October 2013, Manila Hotel

Has the Philippines Gained

from its Investment Grade Rating?


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2

Outline of Presentation

A. Journey to Investment Grade Rating

B. Significance of Investment Grade Rating

C. Beyond Investment Grade

D. Policy Thrusts


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3

Key Macro Indicators2007-2011

Ave2012 2013

Sustained growth

momentumReal GDP growth (2000=100) 4.7 6.6 7.5 (Q2)

Manageable inflation Headline inflation (2006=100) 4.8 3.2 2.8 (Jan-August)

Ample liquidity andcredit supportive ofeconomic activity

Domestic Liquidity (% of GDP) 48.0 49.0 51.8 (Jan-June)

Domestic Credits* (% of GDP) 48.4 50.5 51.1 (June)

Sound and stablebanking system

Non-performing loans

(% of total loans)

UBs and UKBs

3.8 1.9 2.8 (May)

Capital Adequacy Ratio(consolidated basis)** - UBs andUKBs

16.3 18.4 n.a.

Robust external profile

Current Account Balance(% of GDP)

4.0 2.8 4.2 (Jan-Jun)

GIR (in months of imports) 8.4 11.9 11.9 (end-Sep)

External debt (% of GDP) 31.7 24.1 21.8 (Jan-Jun)External debt service burden(% of exports of goods, receipts ofservices & income)

9.8 7.4 8.3 (Jan-Jun)

Fiscal PerformanceDeficit, in billion pesos(% of GDP)

-178.3

(-2.02%)

-242.8

(-2.3%)

-104.5 (Jan-July)

(-0.9%)

At a glance: Philippines sustains economic improvements

*Computed using Net Domestic Credit (NDC)**Computation based on the combined reports of parent bank (head office and branches) and its subsidiaries engaged in financial

undertakings but excluding insurance; also excludes trust department.


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Investment grade rating upgrades boost investor confidence

Date Credit Rating Agency From To Outlook

27 March 2013 BB+ BBB- Stable outlook

2 May 2013 BB+ BBB- Stable outlook

7 May 2013 BBB- BBB Stable outlook

2 August 2013 BBB- BBB- Positive outlook

3 October 2013 Ba1 Baa3 Positive outlook

Journey to Investment Grade Rating


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InvestmentGrade

Ratings

AAA Aaa AAA Extremely strong Singapore

AA+ Aa1 AA+

Very strong United StatesAA Aa2 AA

AA- Aa3 AA-

A+ A1 A+

StrongKorea

MalaysiaA A2 A

A- A3 A-

BBB+ Baa1 BBB+

Adequate

Thailand

Brazil

Philippines

BBB Baa2 BBB

BBB- Baa3 BBB-

Non-investment

Grade

Ratings

BB+ Ba1 BB+

Less vulnerable VietnamBB Ba2 BB

BB- Ba3 BB-

B+ B1 B+

More vulnerable CambodiaB B2 B

B- B3 B-

CCC+ Caa1 CCC+

Currently vulnerableCCC Caa2 CCC

CCC- Caa3 CCC-

CC Ca CC Currently highlyvulnerable

GreeceC C C

DefaultSD D RD

DefaultD D

Credit Quality Countries

Credit Ratings - Mapping of Rating ScalesROP is amongst a select group of Emerging Markets that have crossed the Investment Grade threshold


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How ROP Achieved Investment GradeKey factors to Investment Grade Rating

External Balance Sheet

Structural current account surplus with consistently robust remittances

Large and growing foreign exchange reserves

A confluence of factors helped the ROP secure an Investment Grade rating

Gains in Governance and Supportive Political Backdrop

Political stability on both national and regional level

Core focus on good governance and weeding out corruption

Reform Momentum

Unprecedented levels of support for President with reform-minded agenda

Sin tax, Reproductive Health, and significant steps toward Mindanao Peace Process

Improvement in Public Finances and Debt Levels

Gains in administrative measures toward tax collection have proved meaningful

Overall debt levels have declined; debt has become increasingly longer-dated and denominated in local currency

Healthy Economic Growth and Improved Outlook

Strong levels of domestic consumption with new engines of growth coming online

Pace of reforms has injected new level of confidence in countrys growth prospects

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2

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6

Stable inflation environment

Long-tested ability of the Central Bank to maintain macroeconomic and price stability in a downturn or boom scenario

Favourable macroeconomic outcomes supported by a strong policy-making framework

Strong banking system

The Philippine banking system is well capitalized above regulatory requirements, profitable, with robust buffers against asset quality deterioration

Philippine banks have liquid, deposit-funded balance sheets and sound loss-absorption capacities outcomes supported by a strong policy-making

framework7


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%Y

ield

IMF study shows reaching investment

grade reduces sovereign spreads by 36%

beyond what is implied by

macroeconomic fundamentals.

This compares to a 5-10% reduction inspreads following upgrades within the

investment grade asset class, and no

impact for movements within the

speculative grade asset class.

A separate IMF study also shows that

negative outlook announcements are

followed by statistically significant CDS

spread widening; 100bps for advance

economies and 160bps for EMs.

Credit Ratings - Impact on MarketsCredit ratings are proven to impact the markets

Better ratings mean greater savings to issuers


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Significance of Investment GradeBenefits and implications of reaching Investment Grade

There are both tangible and intangible benefits to crossing the Investment Grade threshold

Financial Benefits

Marks a milestone in ROPs

financial market development

Lowers cost of funding

across the board, whether for

bonds or bank loans

Raises profile of ROP among

global investors potentially

leading to increased

investment flow

Policy Benefits

Serves as a strong platform

to achieve other national

objectivesincreased

investments, strong

economic growth, and higherper capita income

International affirmation of

policymaking and the

positive developments in the

country

Corporate Benefits

Improves access to bond

markets for Philippine

corporate borrowers and

allows them ability to obtain

investment grade rating Lowers the cost of funding

for corporate borrowers


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Significance of Investment GradeROP government bond yields have outperformed peers due to strong onshore bid

0

2

4

6

8

10

1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 10/1/13

percent

Government Bond Yields (10-year)

Philippines Indonesia Singapore India USA Italy


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Significance of Investment GradeROPs 5-year CDS spreads trade tighter than regional peers

0

40

80

120

160

200

240

280

320

1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 10/1/13

bps

Credit Default Swap (CDS) Markets

Japan Korea Indonesia Malaysia Philippines Thailand


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Significance of Investment GradePSE posts significant gains during the first half of 2013

80.0

90.0

100.0

110.0

120.0

130.0

1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 10/1/13

Jan2013=100

Stock Market Index

Korea Indonesia Malaysia Philippines Singapore Thailand


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Significance of Investment GradeExchange rate movements is broadly in line with regional trends

80.0

85.0

90.0

95.0

100.0

105.0

110.0

1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 10/1/13

Jan2013=100

Exchange Rate

India Indonesia Malaysia Philippines Singapore Thailand


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Beyond Investment GradeThe rating was never the end-goal, but the means toward achieving sustained and inclusive growth.

Reaching investment grade ratingis a reflection of the progress the

Philippines is making toward its

medium-term development goals.

Obtaining a reputable third party

stamp of approval assists the

government in attracting the

funds needed for further

investment.

Communication with the marketsis key to ensuring this trend

remains.


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BSP Policy Thrusts

On monetary policy: sustain appropriate monetary policy stance

Continued vigilance over inflation dynamics to safeguard

non-inflationary growth

On financial stability: continue to initiate key reforms

Implement macroprudential measures to minimize systemic risks

Enhance corporate governance framework

Support capital market development

Sustain advocacies on microfinance, financial inclusion and consumer

protection

On external sector stability: strengthen resilience to external shocks

Maintain market-determined exchange rate

Keep comfortable level of reserves and ensure manageable external debtprofile

Remain an active participant in regional and international fora to maximize

the benefits of international cooperation initiatives

Commitment to promote and maintain price and financial stability


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BSP Contingency Measures

Dollar and peso liquidity provision measures

Continue US dollar repurchase (repo) facility Promote use of banks hedging facilities

Adjust terms of access to BSP rediscounting facility

Lengthen maturity of BSP lending instruments

Regulatory forbearance in the event of excessive capital outflow

Allow financial institutions to reclassify financial assets from categories

measured at fair value to those measures in amortized cost

Expand items eligible as asset cover for banks FCDU requirements

Possible responses to surges in capital flows

Careful surveillance of risks

Enhance network analysis to test vulnerabilities in terms ofinterconnectedness of banks and corporates

Cooperate with other central banks or IFIs for information sharing

Ensure timely and clear communication with FIs and market participants


17/17

WILHELMINA C. MAALACManaging Director, International Sub-Sector

39thPhilippine Business Conference and Expo22 October 2013, Manila Hotel

Has the Philippines Gained

from its Investment Grade Rating?

Documents

39th PBC Wilhelmina Manalac