State-owned Development Bank of the Philippines (DBP) is working closely with the Department of Finance (DoF), state regulators and multi-lateral lending institutions in establishing a Local Government Unit (LGU) credit rating system that seeks to mainstream bond flotations as a sustainable financing option for local development projects, a top official said.
DBP President and Chief Executive Officer Emmanuel G. Herbosa said the proposed rating system would provide the bond market with credible risk indicators of individual LGU bonds as well as information on outstanding bond issues which would help buoy confidence and improve risk-appetite of potential investors.
“DBP hopes to institute an LGU-rating organization, much like the credit rating agencies which rate the viability of investments relative to the likelihood of default,” Herbosa said. “We expect a significant increase in development initiatives nationwide once the LGU Bond Market has gained firm footing as it accords a substitute mode of financing.”
DBP is the sixth largest bank in the country in terms of assets and provides credit support to four strategic sectors of the economy, namely, infrastructure and logistics; micro, small and medium enterprises; the environment; and social services and community development.
Based on latest government data, there are around 81 provinces, 144 cities, 1,490 municipalities, and more than 42,000 barangays across the country which fall under the administrative supervision of the Executive Branch through the Department of Interior and Local Government and the DoF.
Herbosa said that DBP’s extensive experience with the LGU sector would help advance the LGU bond market as an essential financial resource to bankroll essential critical infrastructure and social development projects which are commonly heavily dependent on appropriations from the National Government through the Internal Revenue Allotment.
He said through the credit-rating system, LGUs would be able to diversify funds sources which would be based on needs, revenue-earning capacity, and financial maturity.
“DBP would establish a viable risk model that is flexible, pragmatic and forward-looking,” Herbosa said. “Once all LGUs are rated effectively, DBP could easily align its marketing efforts and provide strategic support, especially to those who need financial assistance.”
“We shall continue to explore innovative and sustainable financing solutions so that communities can continue to recover and rebuild from the crippling effects of the public health crisis,” he added.