Credit Rating and the Philippine Capital Market
All throughout my years at the domestic credit rating agency I used to work for, we would always talk about the role that credit rating plays in the development of the capital market. Credit rating facilitates the flow of information in the financial markets and ensures that credit-worthy institutions can raise sufficient funds at the right price. Credit rating promotes discipline, transparency, and adequate disclosure.
The capital market refers to the financial markets, particularly the markets for long-term securities like bonds. It is an organized financial system consisting of banks, financial intermediaries, borrowers, and investors. The stock or equities market is also part of the capital market.
Recently, I read in the newspapers that the Securities and Exchange Commission (SEC) here in the Philippines has already put together a Capital Market Development Plan. This aims to stimulate growth, the efficiency, and competitiveness of the Philippine capital market until 2010. This will entail looking at economic, business, legal, and regulatory factors which have kept our capital markets from growing as fast as our Asian neighbors.
The SEC is looking at the roles that banks and non-bank institutions play in the Philippine capital market. Mobilization of personal savings through pension funds and insurance companies is another area to look into. Interest rate movements are also critical as more reasonable interest rates will entice more entrepreneurs and/or companies to raise long-term funding through the capital market. The SEC will also review policies to increase the national savings rate, rationalize taxation, and most importantly, to lower the total cost of issuing equity and debt instruments.
My former boss, who is now in his ’70s says that as a young professional (so, that’s probably a total of 50 years in the past), they were already talking about capital markets development when he used to be an investment banker. As a credit rating person, all throughout my 14 years, we always talked about credit rating and capital markets development. There have been a few gains. We started to rate asset-backed securities, banks, and local government units. The market, when I left, in September 2006, was no longer the same or as limited as the market when I joined in September 1992. Anyway, even if am out of the credit rating business already, I still hope that in my lifetime, I will see a capital market that is as thriving as the one in Malaysia or even Thailand — and in my dreams, India — where they have several rating agencies operating. Why is that? The availability of reasonably-priced funds and the efficiency with which we allocate funds contribute a lot to the development of a country and just like every Filipino, we all wish to see our country progress economically and financially — not just for a handful few but for each and every Filipino.