BSP: Earning investment grade now more difficult

Posted at 04/21/14 8:55 AM

MANILA - Credit-rating agencies are now more prudent in giving out credit-rating upgrades to bonds and sovereign entities, learning from their mistakes at the height of the 2008 global financial crisis, a Bangko Sentral ng Pilipinas (BSP) official said.

Sought for a reaction on the claims that the Philippines has better economic fundamentals than other higher-rated economies in the region, BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said the major credit watchers are only being more careful so as not to repeat their mistakes committed in previous years.

“[My own take there is that] they are very careful because they got burned during the global financial crisis. They were certifying bonds, corporate bonds as ‘triple As’ only to find out during the crisis that they are [weak]; even their credit ratings on national jurisdictions [were proven faulty]; only to find out that they are really very weak,” Guinigundo told reporters in a chance interview.

The three major credit-rating agencies have upgraded the Philippines to investment grade just last year. Standard & Poor’s Ratings Services and Fitch Ratings assigned the Philippines with a “stable” outlook, while Moody’s Investors Service gave the country a “positive” outlook.

“Moody’s is very positive of the Philippines. In fact, they are the only one to give us a positive outlook,” Guinigundo said.

A positive outlook means that the jurisdiction may be subject for review for another upgrade in the next 12 to 18 months following its last credit assignment. A stable outlook, meanwhile, means that the jurisdiction is not expected for either upgrade or downgrade over roughly the same time span.

Guinigundo also said the country’s successful campaign for an upgrade from the three major credit-rating agencies was not an easy feat, as the central bank needed to push hard and prove the country’s solid fundamentals before the credit watchers.

“In our case, they kept us two to three notches below investment grade. And during those period—in 2002 to 2003, up to 2011 to 2012 to 2013—a lot of very significant reforms were taken—the economy has expanded, inflation has stabilized, public finances improved tremendously, and the banking system continues to improve,” Guinigundo said.

He also said a few years back, the central bank reviewed the three methodologies that the credit watchers used to rate jurisdictions and told the ratings agencies that the Philippines, was, indeed ripe for an upgrade.

“We were also very active and we forced the issue…. We always touched base with the credit rating agencies. We invited them every so often to the Philippines. We showed them Clark Airbase, Subic, we showed them Cebu, we brought them to Davao to convince them that the progress was not limited to Metro Manila, [that] it is spreading to the Visayas and Mindanao,” Guinigundo said.