Interest rates decline likely when PHL credit upgrade comes — Philam Life

Getting an investment grade rating from global debt watchers will mean at least about 25 to 50 basis points of decrease in interest rates, Philam president and CEO Rex A. Mendoza said Tuesday. In recent weeks, Finance Secretary Cesar Purisima and officials of the Bangko Sentral ng Pilipinas have been saying that the Philippines is ripe for an international credit upgrade to investment grade. They have claimed that the country is currently underrated.   Meanwhile, an economist of the HongKong and Shanghai Banking Corp. (HSBC) said the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) will likely maintain policy rates at current record lows.   “With exports performing better than expected recently and likely to be relatively better than last year's, coupled with increased government spending, the BSP has scope to keep rates steady when they meet on Thursday,” HSBC’s Trin Nguyen said.   At its March 1 meeting, the BSP policymaking board decided to reduce its key policy interest rates by 25 basis points to 4.0 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.0 percent for the overnight lending or repurchase (RP) facility.   “Furthermore, with a volatile external environment that could stoke inflationary pressures through both imported inflation as well as domestic supply shocks, the BSP will likely hold rates steady for the rest of the year,” Ngyuen added.   Shift to longer-term bonds   Mendoza said "a large part" of Philam Life's P11.95 billion investment income came from fixed income, government bonds.   "That investment income in retrospect has also been generated because of a shift in duration...The market interest rates are continuously declining. If we get our  upgrade in terms of our rating, we expect interest rates to go down," the Philam Life CEO said.   "As an insurance company we have to match our duration with the commitments we have made, which is why we had to let go of certain bonds to purchase longer term bonds. There was an opportunity in 2011 where we able to do a swap with government," he explained.   Mendoza also revealed that Philam's board approved moves to increase their "level of commitment in risk assets... in our real estate base and equity portfolio base."   In a statement, Philam Life said its investment income growth of six percent is a "testament to (their) track record of making consistent and wise decisions." Mergers seen in industry   It also sees other insurers merging to comply with the Insurance Commission's P1 billion capitalization requirement.   Mendoza said Philamlife is the only insurer in the country that has more than met the P1 billion minimum with nearly P2 billion capitalization.   "We believe that these numbers are what matters most for the Filipino customer. These numbers reflect a company's strength, stability, and more importantly, its ability to keep its promise," the CEO elaborated.   The insurer disclosed that it paid out more than P70 billion in claims and benefits to its policyholders. "In fact, Philam Life has paid nearly P5 billion in tuition fees and education fees since 2004."   A Philam Life set of charts shows Sony Life, BPI Philam Life, United Cocolife, and Sun Life as further down the paid-up capital rankings based on 2010 figures. —  GMA News