The Philippine central bank warned companies to avoid an excessive reliance on short-term funding that could leave them vulnerable when refinancing debt.
鈥淲hile increased risk-taking and leverage are not seen as excessive, the high level of debt incurred by corporates warrant close monitoring,鈥 Bangko Sentral ng Pilipinas said in its annual Financial Stability Report released on Thursday. 鈥淢any corporates continue to face persistent funding mismatches where current liabilities exceed current assets.鈥
The Philippine economy is among the region鈥檚 fastest-growing, with Finance Secretary Ralph Recto last week saying gross domestic product may expand as much as 7% this year as interest rate cuts spur investment and expansion. The BSP said that while corporate profits have also been rising, risks include an over-reliance on bank lending, the use of short-term funding for long-term investment, and the interconnectedness between some companies and systemically important banks.
鈥淎 maturity wall and higher leverage may make refinancing challenging at higher interest rates,鈥 it said.
Another danger is a potential mismatch between local-currency revenues and offshore liabilities. Non-financial corporations have an estimated P2.48 trillion ($43 billion) of foreign-currency debt maturing this year, plus P11.3 trillion of local-currency borrowings falling due in 2025, according to the BSP report, which cited data from S&P Capital.
The P14.24 trillion maturing in 2025 is a third lower than the P21.54 trillion total maturities in 2024. Maturing debts are seen easing below P10 trillion by 2028.
The regulator said conglomerates and lenders must exercise caution in lending to a subsidiary or affiliate, pointing out that banks鈥 asset quality and capital adequacy may decline if any conglomerate experiences financial distress.
The top 15 conglomerates owe P9.7 trillion, accounting for 93% of total corporate debt, according to the BSP. Many of these conglomerates also own major lenders.
鈥淲hile such related-party transactions are allowed, this must be conducted in an arm鈥檚 length basis within prudential limits,鈥 the BSP said.
The central bank called for the development of alternative sources of financing to help lessen companies鈥 dependence on bank financing.
鈥淭his entails streamlining issuance requirements, particularly for small to mid-sized corporate borrowers, improving platform accessibility through technology, and increasing activity through engaging market-makers,鈥 the report said. — Bloomberg
