The Philippine banking system is strong and prepared to withstand possible shocks posed by the collapse of some banks in the US, the Bangko Sentral ng Pilipinas (BSP) said yesterday.
Felipe Medalla, BSP Governor, said Philippine banks “have an asset base that significantly differs from that of US banks.”
“The BSP has long implemented structural reforms to ensure the safety and soundness of banks. These include adoption of sound governance and risk management standards which enable banks to assume risks commensurate with their risk-bearing capacity; prudential limits and requirements, including the Basel III reforms on capital and liquidity standards which enable banks to maintain adequate capital and liquidity; and strengthened surveillance mechanisms and coordination efforts which allow the BSP to closely monitor developments that may pose risks to the financial system and proactively respond as warranted,” Medalla said.
Medalla added the BSP has in place Emergency Loan Facilities which can be tapped by solvent banks experiencing serious liquidity problems.
Lastly, BSP was given enhanced resolution authority through the amendments to the Charter of the Philippine Deposit Insurance Corporation, he said.
In reaction to the collapse of Silicon Valley Bank (SVB) and Signature Bank in the US, Medalla said Philippine banks “do not have material exposure to the failed banks.”
Medalla also said the troubles at Credit Suisse will not have a “significant impact” on the Philippines.
“It does not look like that other Globally Systemically Important Banks (GSIBs) have the same problem, in which case the impact on the global economy (and therefore the Philippines) will not be significant,” Medalla said.
“The BSP will continue to closely monitor developments, assess their impact on the banking system and respond accordingly,” Medalla said.
Medalla explained Philippine banks mostly hold loans “which are less susceptible to changes in fair value whereas, security holdings of SVB was larger in relation to their capital.”
Data from the BSP showed that, as of end-January 2023, total loan portfolio, net of allowance for credit losses, comprised the largest share of the banking system’s total assets at 53.0 percent or P11,917.6 billion followed by investments and cash and due from banks with 29.2 percent share (P6,565.2 billion) and 12.2 percent share (P2,740.6 billion), respectively.
Data from the S&P Capital IQ, meanwhile, showed that SVB had about $118.0 billion debt securities or roughly 56.5 percent of its $209.0 billion total assets as of end-December 2022.
Medalla said only 27.5 percent or P6.329 trillion of the Philippine banking system’s total assets were in portfolio investments for the same period.
The BSP chief also said Philippine banks have lower market risk exposure compared to US banks.
“Losses of Philippine banks, including estimated net unrealized losses on security holdings due to the rising interest rate environment, are expected to be smaller relative to their US counterparts given that the US Fed policy rates rate hikes were larger and came from a lower level than BSP policy rates,” Medalla said.
He added the Philippine yield curve did not invert similar to the US yield curve.
Also, Medalla said US banks’ bond holdings have longer tenors–as long as 30 years, whereas Philippine banks mostly hold government securities with residual maturity of up to 15 years.
Medalla added Philippine banks “maintain a diversified lending base across counterparties and industry types and their loan quality is manageable,” stressing that the banking system’s non-performing loans ratio stood at 3.3 percent as of end-January 2023 from 4.1 percent a year ago.
“Philippine banks have strong risk governance and risk management systems. Banks maintain sufficient capital to absorb unexpected losses from policy rate increases. (Our banks) are highly liquid and tend to rely on a wide depositor base compared to US banks,” Medalla said.
The liquidity coverage ratio (LCR) of universal/commercial banks, accrding to the BSP, was at 185.7 percent on solo basis as of end-December 2022, higher than the 100 percent minimum requirement.
Meanwhile, the minimum liquidity ratios of standalone thrift banks, rural banks and cooperative banks were higher than the 20 percent requirement and stood at 29.9 percent, 63.7 percent, and 44.4 percent, respectively, on solo basis.
