Fitch’s Philippine ratings lower than other credit agencies


By Corina Oliquino

In its latest credit ratings for the Philippines, Fitch “affirms” the “BBB-“outlook, positive for the country.

According to its rating scale, “BBB-“denotes a “good credit quality” or a minimum investment grade, in which, “expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.”

In its April 8 release, Fitch maintained that the Philippines’ Long-Term Foreign and Local-Currency Issuer Default Ratings as BBB- and BBB ratings, respectively and that the “outlook remains positive.’” As for the country’s senior unsecured foreign and local currency bonds the rating stands the same at BBB- and BBB, respectively and the Country Ceiling is affirmed at BBB while the Short-Term Foreign-Currency IDR is at F3 (according to Fitch’s rating scale, this denotes a fair short-term credit quality and that the “intrinsic capacity for timely payment of financial commitments is adequate.”)
Fitch said that the credit ratings for the Philippines were affected by the following key factors or Key Rating Drivers:

• “External finances are a rating strength.”
– According to Fitch, since 2003, the Philippines is running on current-account surpluses with an average three percent gross domestic product (GDP) for the period of 2011 — 2015 which led to a build-up in foreign exchange reserves with the help or remittance inflow from OFWs.

– “The country’s net external creditor position at nearly 14 percent of GDP compares to the median net debtor position of 4.6 percent of GDP among peers in the ‘BBB’ rating category,” Fitch Ratings noted.
• “Government debt and deficit levels have been declining and by the end of 2015, general government debt to GDP is estimated at about 36 percent of GDP compared with 43 percent of GDP at the end of 2010.”

– Though the government’s fiscal deficits have narrowed to 0.9 percent of GDP in 2015 compared to the 3.5 percent of GDP in 2010, Fitch estimates that the fiscal deficit would still remain under 2 percent of GDP. Fitch attributed this to the government’s low revenues, which according to them “reduces the sovereign’s ability to contain fiscal balances in the event of a shock, as a weakness in the Philippines’ fiscal profile.’

– “Fitch estimates general government revenue was close to 20 percent of GDP in 2015, which is lower than the ‘BBB’ median’s 28.6 percent and ‘A’ median’s 34.7 percent,” Fitch Ratings noted.

• “The Philippines’ low average income and level of development is a credit weakness.”

– According to Fitch, the Philippines’ GDP per capita of $2,860 in 2015 is lower than the BBB median of $9,253 and does not significantly support or capture the living standards provided by remittances sent in by OFWs.

– “In 2014, the country fell in the 37th percentile on UN’s Human Development Index, compared with the 63rd percentile for the ‘BBB’ median,” the Fitch Ratings’ reported.

• “Governance standards have continued to strengthen since 2010 under the current administration of President Benigno Aquino III, especially government effectiveness and political stability as measured by World Bank’s governance metrics.”

– Fitch noted that since the elections in May 9 is just around the corner, the firm expressed its concern whether the next administration will preserve or extend the improvements made under the Aquino administration.

• “Macroeconomic growth performance remains favorable.”

– Fitch noted that the average real GDP growth of the Philippines in 2011-2015 was at 5.9 percent and far above the BBB median of 3.3 percent and the A median that is set at 3.2 percent.

– “Fitch expects the Philippines’ growth momentum to continue and expects real GDP growth to average around 6 percent over 2016-17.”

• “Liquidity levels in the Philippines’ banking sector are ample, capitalization is strong and loan-loss reserves have risen.”

– Fitch noted that the loan growth in the Philippines slowed to nearly 14 percent in 2015 and 19 percent in 2014.

– “Active supervision and regulation by a risk-aware central bank, which has progressively strengthened risk management requirements for the banks over the years, have helped to temper the risks from high credit growth,” Fitch Ratings reported.

Fitch also noted that in order for the Philippines to have a positive rating action, the country should maintain or improve the following: improvement in governance standards sustained even after elections and even under a new administration, broadening of the government’s revenue base that could lead to greater stability of government finances and continued strong growth without occurrence of imbalances or disparities.

Philippines remains “underrated”
According to, Finance Secretary as well as other economic managers say that the country remains underrated, and regarded the Fitch-investment-grade rating as the “lowest among scores assigned to the Philippines by a credit rating agency.”

“We believe that we are still underrated by at least a notch. The Philippines continues to outshine similarly rated peer sovereigns amid global volatility. Likewise, we continue to outperform with better fundamentals and robust domestic drivers of growth,” Purisima said.

The posting also said that the Fitch Ratings of the Philippines is a notch lower compared to the credit rating of Baa2 from Moody’s Investors Service, its BBB rating with Standard & Poor’s, NICE Ratings, and R&I.

The Philippines got a BBB+ from Japan Credit Rating Agency which was two notches higher than the credit rating given by Fitch.

“We’ve had a solid 6-year run of growth and stability as the world’s most upgraded sovereign. But as they say, the biggest room in the world is the room for improvement. With another upgrade in the offing, the onus for continuity looms larger than ever,” Purisima added.

Bangko Sentral ng Pilipinas (BSP) Governor Amado Tetangco Jr., in an interview with Rappler, said the country is expected to continue enjoying an “inflation environment and a financial system supportive of robust economic growth.”

“The BSP, which enjoys policy independence and fiscal autonomy from the national government as enshrined in law, has put in place sound frameworks for monetary policy and bank supervision,” Tetangco said.

Investor Relations Office (IRO) Executive Director Editha Martin said that Fitch Ratings of BBB- for the Philippines was “overdue” and that the current rating had been in place since March 2013.

“Since then, the Philippines’ macroeconomic performance and public finances have improved, and additional governance reforms were put in place,” Martin said.