MANILA, Philippines – Global debt watcher Standard & Poor’s Ratings Services (S&P) has warned Asia-Pacific countries, including the Philippines, of too much monetary easing, saying this could lead to asset bubble formations which may impact negatively on credit ratings.
S&P credit analyst Kim Eng Tan, in a recorded interview uploaded at the S&P website, said the New York-based credit rater is “wary of the implications of the unprecedented global monetary conditions, which are very easy right now.”
“These easy monetary conditions may be appropriate for deleveraging developed economies. However, for this region where many economies continue to grow decent space, there is a risk that they could trigger unsustainable credit growth and asset bubbles,” Tan said.
“Both of which could become issues that could lead to weakening sovereign ratings,” he added.
Asset bubbles are formed when most real estate buyers misuse their properties for investments, thereby making them worth much higher than the prevailing market prices.
Also, a loose monetary policy – characterized by low interest rates – is seen to promote bank lending, proceeds of which can be used to buy properties. When loans used to purchase real estate assets get unpaid, that is when the bubble is believed to have burst. Such is detrimental to the economy.
The Philippines, being one of two countries upgraded by S&P in the last six months, said it is comfortable with the status of its real estate market for now.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor Espenilla Jr. said last Wednesday regulators “are not seeing at this point in time crisis in the property market.” That is, despite the BSP cutting key rates by a total of 75 basis points this year to new record lows to support economic growth.
Rick Santos, chairman and chief executive officer of property consultancy firm CB Richard Ellis Philippines, agreed.
“This is the best real estate market I have seen in the Philippines in the last 20 years. There is no danger of another real estate bubble similar to the 1997-1998 period because the market is working based on real demand,” Santos said in an e-mail message.
Last week, S&P said in a report that Asia-Pacific nations may not see any positive ratings action in the next 12 to 18 months as the euro zone crisis worsens and fears of a China hard landing- slow growth and skyrocketing inflation- persist.
The Philippines was last upgraded by S&P in July, bringing it one notch below investment grade with a stable outlook. The Aquino administration is targeting an investment grade by next year to bring down interest in its debts and attract more foreign investments. –Prinz P. Magtulis (The Philippine Star)
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