4 weeks ago
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Keisha Ta-Asan - The Philippine Star
February 18, 2025 | 12:00am
In a report, the debt watcher said financial institutions in the Asia-Pacific region, including the Philippines, may experience secondary effects from policy uncertainties, which could impact borrowers and, in turn, banks.
STAR / File
MANILA, Philippines — Philippine banks, alongside their regional counterparts, are bracing for heightened volatility this year as shifting trade policies in the US under President Donald Trump’s administration reshape global financial conditions, according to S&P Global Ratings.
In a report, the debt watcher said financial institutions in the Asia-Pacific region, including the Philippines, may experience secondary effects from policy uncertainties, which could impact borrowers and, in turn, banks.
“Financial institutions will most likely incur secondary effects from the added uncertainty and volatility that we anticipate. The direct ratings effects could still be profound,” S&P said.
The complexity of cross-sector and cross-regional linkages makes the full extent of these effects difficult to predict, it said.
S&P said potential US tariffs on key industries such as the Mexican auto sector could have spillover effects on Asian car manufacturing hubs, including Japan, Korea and China.
This could, in turn, affect banks’ lending to the auto sector and other corporate clients that depend on bank funding.
For the Philippines, where banks remain sensitive to external shocks, heightened volatility in global trade and financial markets could weigh on credit conditions. However, the overall rating outlook for the country remains stable, indicating that major disruptions are not yet anticipated.
According to S&P’s banking sector risk table, the Philippines holds a stable economic risk trend, though it has a “very high risk” rating in economic resilience – suggesting vulnerabilities in handling financial shocks.
The country’s credit risk in the economy, institutional framework, and competitive dynamics were all marked as intermediate risks.
S&P also emphasized that governments across the region, including the Philippines, are likely to provide extraordinary support to systemically important banks in times of crisis.
However, the report cautioned that any negative changes in sovereign credit ratings could directly impact Asia-Pacific banks.
Out of 21 sovereigns rated in the region, 18 currently hold a stable outlook, while three have a positive outlook. The Philippines is among those with a stable outlook, suggesting limited immediate risks to bank ratings.
S&P further noted that while systemically important banks are expected to remain stable, smaller financial institutions face greater challenges. These firms often have more concentrated business models and funding profiles, making them more vulnerable to market shocks.
Despite these risks, S&P maintained that its base case assumes relative rating stability for Asia-Pacific financial institutions through 2025, barring any significant disruptions.
“The Asia-Pacific banking sector is heading into an environment of escalating trade tensions and market uncertainty in overall good shape,” the credit rater said.
It added that while the sector is diverse across different jurisdictions, financial institutions have enough flexibility to navigate a potential downturn driven by trade and currency fluctuations.
