RP drops from 48th to 50th in list of world’s leading financial centers

MANILA, Philippines – The Philippines dropped from 48th to 50th in ranking among 55 of the world’s leading financial systems and capital markets, according to the World Economic Forum Financial Development Report 2009.

The Philippines is behind Pakistan, ranked 49th. The country also received poor ranking and falling near bottom compared to other ASEAN countries.

Despite generally low levels of stability, the report said the financial systems of the Philippines and Pakistan also provide some indications of strength. The Philippines benefits from a relatively high degree of currency stability.

“The two countries also show relative advantages in their financial markets, as seen particularly in Pakistan’s fairly developed equity market and the Philippines’ active bond market,” the report said.

In the FDI’s institutional environment pillar, the Philippines ranked 43rd. The institutional environment encompasses the laws and regulations that allow the development of deep and efficient financial intermediaries, markets, and services as well as the macroprudential oversight of financial systems. This includes the overall laws, regulations, and supervision of the financial sector, as well as the quality of contract enforcement and corporate governance.

The country ranked 51st in the second pillar that focuses on the business environment and considers the availability of human capital, the physical and technological infrastructure; and other aspects of the business environment, including taxation policy and the costs of doing business for financial intermediaries.

In the financial stability pillar that tries to capture the risks of three types of crises – currency, systemic banking, and sovereign debt crises – the Philippines ranked 47th and 45th in banking financial services. The country occupied the 41st rank in non-banking financial services, 40th in financial markets, and 51st in financial access.

This year’s FDI also illustrates some interesting findings with respect to developing countries, because within the FDI’s financial stability pillar, a number of developing countries – such as Brazil, Chile and Malaysia, Philippines’ neighbor – achieved strong scores.

A comparison of commercial financial access and retail financial access measures illustrate that larger enterprises in developing countries appear to enjoy access to financial services (such as equity offerings and private credit) that rivals access seen in developed countries.

However, developing countries did not score nearly as well in terms of retail financial services provided to individuals (such as savings and demand accounts, micro credit, and point-of-sale financial services) despite the importance of these agents to the economies of many developing countries.

Of the ASEAN countries, Singapore ranked 4th and Hong Kong SAR 5th.These two economies show consistent strength across their institutional and business environments, as well as high scores in financial stability. Within the banking pillar, both economies show room for improvement with respect to financial information disclosure; however, this is offset by the efficiency of their banks.

Malaysia ranked 22nd, doing consistently well across most aspects of its financial system.

A stable currency underpins the country’s relatively stable financial system. Its strength as an Islamic banking center appears evident in a relatively high score in the banking pillar, with a high degree of financial disclosure being a key contributor here.

Thailand, ranked 35th, displayed a consistently sound performance across most of the Index pillars.

The most salient shortcoming for Thailand’s financial system can be seen in the weak score for the stability of its banking system, a disadvantage driven both by the frequency of past crises and a measure of the current financial strength of its banks. By contrast, a relatively stable currency helps support the stability of the overall financial system.

Although Vietnam ranked 45th displaying weaknesses across a number of aspects of their financial systems, competitive advantages do also exist. In Vietnam, a low degree of external vulnerability and a relatively small percentage of external debt to GDP boost the banking system’s stability.

The report noted bright spots in the financial system of Indonesia that ranked 48th because of the country’s significantly stable currency as well as a fair degree of securitization activity, but the report said these advantages are not enough to offset generally weaker scores across other areas of financial intermediation such as financial banking.

The report, which ranks 55 of the world’s leading financial systems and capital markets, found the United Kingdom is now the world’s leading international financial center and was stronger than Australia (2nd) and the USA (3rd) because of the “relative strength of its banking and non-banking financial activities.”

The Financial Development Report 2009, in providing a depth of information across a number of economies, serves to highlight some of the variation across individual financial systems that must be considered in building on existing strengths and looking for workable solutions to problems.

It said that once the priorities of stabilization have been achieved, reform and development must be undertaken with a sensitivity to the requirements, levels of development, and specific circumstances of individual countries. –Pia Lee-Brago (The Philippine Star)