Moody’s Reports That PH Banks Have One of the Lowest Forex Risks

According to Moody’s Investors Service stated that the banking system of the Philippines has one of the lowest foreign exchange risks in emerging markets where currencies have lost value in light of the strong US dollar.

In its report titled “Foreign Currency Risk is Acute for Some Banking Systems,” Moody mentioned that for countries like Guatemala, Cote D’Ivoire, Chile, Vietnam, Indonesia, and the Philippines, foreign exchange risks for banks remain low.

“These banking systems have low levels of dollars in the system and/or their sovereigns face low risk related to FX repayments and maintain adequate foreign-currency reserves,” says Moody.

With Moody’s study, countries like Ukraine, Turkey, Tajikistan, Nigeria, Kyrgyz Republic, El Salvador, and Belarus, have high forex risks for their banks.

“These countries generally have higher dollarization in deposits, high external debt, weak reserves, and/or constrained access to FX closed capital accounts,”  says Moody’s.

Moody warns that material exposure to fluctuations in currency can unearth more risks to asset quality, capital, and liquidity for banks in emerging markets.

“Local currencies in many emerging markets have weakened against the dollar this year amid rising inflation, higher interest rates in the US, and country-specific economic challenges,” says Moody’s.

This year, the Philippine peso hit a new low of ₱59 to $1 while the BSP tried to counter this with huge rate hikes to tame inflation and stabilize the peso.

From January to October, inflation averaged 5.4% which was above the target range of 2- 4% of the BSP.

Source: Philstar