39th PBC Wilhelmina Manalac
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Transcript of 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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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
1
2
345
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
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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?