Banks in PNG face credit pressure

Papua New Guinea's financial institutions face risks from increasing credit pressures on the local and international scene because of the low global energy prices, according to the Standard and Poors rating service.

It revised its long-term issuer credit rating outlook on Bank of South Pacific Ltd on Monday from “stable” to “negative”.

It also affirmed “B+” long-term and “B” short-term ratings on the bank. 

“Although we believe that important credit factors specific to Bank South Pacific remain broadly unchanged, we consider it unlikely that BSP would be insulated from increasing credit pressures on both the sovereign and the broader operating environment as falling export revenues increase the risk to the government’s financials and the economy’s external vulnerabilities,” it said.

“We note that the rating action does not reflect important credit factors specific to BSP, which remain broadly unchanged, in our view.

“Instead, the rating action reflects our view that PNG’s economic resilience is under pressure from lower global energy prices, which in turn increases the risk within PNG’s banking system.

“In particular, we believe the weakness in global energy prices will increase the pressure on Papua New Guinea’s economic growth in the short to medium term, as we expect lower export revenues to translate into lower government spending.”

BSP group chairman Sir Kostas Constantinou yesterday said the rating did not reflect any changes to credit factors specific to Bank South Pacific, which remained broadly unchanged. 

“However, S&P took into consideration similar issues which recently saw a revision of the outlook for PNG, when assessing their credit rating outlook.” The National/ PNG Today