The Bangko Sentral ng Pilipinas (BSP) has assured Malacañang that Philippine banks are strong and prepared to withstand possible shocks arising from the failure of two major banks in the US and the crisis faced by Credit Suisse in Europe.
BSP Governor Felipe Medalla said in a report sent to President Ferdinand Marcos Jr. that the Philippine banking system is strong and prepared to withstand possible shocks posed by the collapse of Silicon Valley Bank (SVB) and Signature Bank.
Medalla said 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.
• 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 (as a percentage of assets) relative to their US counterparts given that: (a) US Fed policy rates rate hikes were larger and came from a lower level than BSP policy rates; (b) PH yield curve did not invert similar to the US yield curve; and (c) 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.
• Maintain a diversified lending base across counterparties and industry types and their loan quality is manageable.
• Have strong risk governance and risk management systems. Banks maintain sufficient capital to absorb unexpected losses from policy rate increases.
• Are highly liquid and tend to rely on a wide depositor base compared to US banks.
• Do not have material exposure to the failed banks.
Nonetheless, the BSP chief said the regulator would closely monitor developments, assess their impact on the banking system and respond accordingly.
“The BSP has long implemented structural reforms to ensure the safety and soundness of banks,” Medalla said.
These reforms include the adoption of: (1) sound governance and risk management standards which enable banks to assume risks commensurate with their risk-bearing capacity; (2) prudential limits and requirements, including the Basel III reforms on capital and liquidity standards which enable banks to maintain adequate capital and liquidity; and (3) 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.
According to Medalla, the central bank 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 Corp. (PDIC).
