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BSP backs global unified credit ratings

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The Bangko Sentral ng Pilipinas (BSP) supports initiatives to institute a unified credit ratings for all countries around the globe.
In his speech in one of the seminars during the 45th ADB Governors Meeting being hosted by the Philippines from May 2-5, 2012, Tetangco said rebalancing of sovereign, corporate, and financial institutions’ credit ratings for Asia and the rest of the world will enable an “apples to apples” comparison.”

“The need for this is widely recognized,” he said citing the decision of the Association of Credit Rating Agencies in Asia (ACCRA) to publish in 2011 the “ACRAA Code of Conduct Fundamentals for Domestic Credit Rating Agencies.”

The central bank chief hinted a proposal to put up either a regional credit rating agencies (CRAs) or urge the CRAs “to look at our region with more openness, given the region’s excellent performance in the recent crisis.”

“What is clear for now, however, is that any work going forward should include the rebalancing of sovereign credit ratings for the region and globally,” he said.

“It is likewise imperative that future work will include the careful education of investors and governments alike...and greater transparency in the thought processes and methodologies that are to be used to arrive at such ratings,” he said.
Lately, CRAs downgraded credit ratings of major economies and upgraded those from emerging markets.
Tetangco said this was due to several factors like economic, financial and political factors…

He said these changes would affect the cost of capital of the countries as those upgraded found their financing cheaper while those downgraded expensive.

He also cited that countries that were recently upgraded would also be more attractive to investors and register higher foreign direct investments (FDIs).
“These trends, in turn, provide new impetus for greater corporate sector investment, enhanced job creation and ultimately, higher growth rates and broader-based prosperity,” he said.
Although credit rating upgrade was positive for the countries, this pose additional challenge for monetary officials, particularly on monetary policy and managing volatilities in capital flows, Tetangco said.

The central bank chief, on the other hand, pointed out that amid the possible complications of the ratings upgrade to monetary policy situation in a country, the rebalancing trend on credit rating globally comes along with the BSP’s effort to help deepen the country’s local currency capital markets.
“We in the BSP have learned from previous crises that the healthy development of our local currency capital markets is integral to our long-term growth prospects. We also believe this trend will allow for greater financial stability as our corporations and banks have efficient options to fund in pesos, lengthen borrowing tenors and diversify away from traditional heavy reliance on loans,” he added.

by: PNA/PIA9-ZBST




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