THE Bangko Sentral ng Pilipinas (BSP) said local banks are now in the pink of health despite external financial volatility, and can withstand turmoil should another global crisis arise.
BSP Deputy Governor Chuchi G. Fonacier, in an interview with the BusinessMirror, expressed confidence that they have put in enough regulatory safeguards to make the Philippine banking system strong enough against international crises.
“The Philippine banking system [PBS] remained stable and resilient even during the past GFC [global financial crisis], and the outlook of the banking system continues to be positive,” she said.
Her positive remarks came on the heels of last week’s observance of the 10th anniversary of the global financial crisis that saw some of the world’s biggest financial institutions collapse under the weight of debts incurred in a long, loan-drunk period of low interest rates, reckless lending practices and shoddy, if not deliberately deceptive, assessments by credit-rating agencies.
There has been much discussion here and abroad about the possibility of another such crisis taking place, and what its shape could be.
Officials and experts interviewed earlier by the BusinessMirror (“See, Global financial crisis 10 years after: Philippines learned its lessons well,” on BusinessMirror, September 20, 2018) said the country had not been so scarred by the 2008 GFC due to good regulatory systems and stable, compliant banks.
For his part, in analyzing the possibility of a recurrence, noted financial advisor Peter Lundgreen had written in the BusinessMirror at the weekend (“See, This is how the next economic crisis will look like,” on BusinessMirror, September 23, 2018) that the “next” crisis “will happen when the trust disappears” in the ability of governments to repay debt. He noted how, since the GFC 10 years ago, “the trust in increased government spending has been universal.” However, the past decade has seen the risk being shifted from the heavily leveraged corporations and households to the governments around the globe.
Faster banking growth
Moody’s Industrial Service earlier recognized the Philippine banking system’s potential to grow faster than its counterparts in neighboring countries due to the young population of the country.
“Over the next decade, of the 17 banking systems in Asia Pacific, banks in Japan, Hong Kong, Korea and Taiwan, in particular, will face challenges from the effects of shrinking prime-age populations and declining proportions of working people,” Moody’s Senior Vice President Chrisitne Kuo said.
“By contrast, banks in India, Indonesia and the Philippines will see growth opportunities in the same period from the effects of rapidly growing prime-age populations and increasing proportions of working people,” Kuo added.
Fonacier echoed this sentiment, saying banks are expected to sustain their growth momentum given the robust economic outlook. “The BSP is nonetheless confident that the industry will be able to effectively manage attendant risks. This is in view of the policy reforms earlier introduced aimed at improving the risk management systems and quality of governance in banks,” Fonacier said.
In the first half of 2018, the local banking system’s assets was up 10.3 percent to P15.7 trillion.
Its nonperforming loans ratio (NPL ratio), meanwhile, remained low at 1.9 percent in the first half of 2018, while capital adequacy ratios of lenders exceed both the 10-percent standard of the BSP and the 8-percent international standard.
Fonacier also said banks displayed proper compliance with the recent Basel III reforms implemented by the BSP.
The Basel III reform agenda is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision (BCBS) in response to the GFC. The measures aim to strengthen the regulation, supervision and risk management of banks. “The BSP’s pace of implementation of Basel III reforms is generally on track with the international standards,” Fonacier said.