MOODY'S SLAPS NEGATIVE OUTLOOK ON RP BANKING SYSTEM
MANILA, OCTOBER 8, 2003 (STAR) Moody's Investors Service on Tuesday slapped a "generally negative" outlook on the Philippines' banking system, warning the health of the smaller players may destabilize the industry if the difficult environment persists.
One week after downgrading the outlook on Manila's sovereign foreign currency rating to negative from stable, the US-based ratings firm said prolonged political uncertainty could weaken the banking system.
While the financial health of its major players remains "fairly sound", the financial profile for the rest of the sector varies, Moody's said in a statement.
It said the difficult operating environment has squeezed interest spreads although moderate-level domestic consumption should provide some support amid improving global conditions.
"However, the country's political uncertainty, if it proves to be protracted, could weaken the economy, and under such circumstances, the abilities of the banks to counter further economic deterioration would diverge," Moody's analyst John Tham said in a report.
President Gloria Arroyo survived a military revolt in July and faces the May 10, 2004 presidential election slightly weakened in the polls.
Moody's said "the slow pace of banking system restructuring" was a "credit concern".
"A few of the country's weak and capital-deficient banks, which are now undergoing rehabilitation, could become the source of destabilization should the difficult operating environment persist."
Tham said the large number of players "will continue to overburden regulators, making the detection of irregularities difficult.
"A further problem is the degree of private influence over government decisions, which can weaken the central bank's ability to enforce its fundamentally sound regulations."
Reported by: Sol Jose Vanzi
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