"We perceive a situation of zero or small positive growth for the remainder of 1998 and no real significant change to that over the medium term, certainly during 1999," Gavin Gunning, S&P's associate director of financial institutions, told Reuters Television on Friday.

In the first half, the Philippines gross national product(GNP) growth stood at 0.6 per cent compared with the year-earlier 5.4 per cent, a result of the prolonged Asian financial crisis.

S&P on Thursday announced it had lowered nine of its Philippine bank information ratings to Bpi from BBpi.

The downgrades came amid recognition that the continued weakening of the Philippine economy would result in substantial deterioration in asset quality and profitability.

The banks whose ratings were lowered were Allied Banking Corp, China Banking Corp, Equitable Banking Corp,Philippine National Bank, Rizal Commercial Banking Corp, Security Banking Corp, Solidbank Corp, Union Bank of the Philippines, and the unlisted United Coconut Planters Bank.

"Some other very important assumptions which we built into those downgrades are the continuation of high interest rates, the peso remaining under pressure, the continuation of depressed stock market prices, and we've also got some increasing concerns regarding the real estate market," Gunning said.

"We see a continuation of average interbank rates of about 16 per cent."

The central bank maintained its overnight borrowing rate at 16 per cent to quell speculation against the peso. Last month, it had to raise short-term rates by five percentage points, and lower them later as speculation on the peso cooled off.

S&P predicted in its rating downgrade on Thursday the ratio of banks' non-performing loans (NPL) to gross loans could easily exceed 20 per cent in 1999, up from 10.10 per cent of gross loans at end-May.