Brave capital markets in crisis, banks advised

THE banks may tap the capital markets during this pandemic to improve their capitalization, the Bankers Association of the Philippines (BAP) said.

Several banks have been braving the debt market recently to raise funds, including Security Bank Corp., Bank of the Philippine Islands and Metropolitan Bank & Trust Co.

“With good credit rating, banks may likewise opt to beef up their capital by raising funds through the capital markets,” BAP told the BusinessMirror in an e-mail.

According to a study by First Metro Investment Corp. and University of Asia and the Pacific, corporate bonds are seen bouncing back in the second half after slowing down in April. The report noted that most of the firms are refinancing existing debts by then since many have held off their expansion plans.

The bankers’ group said that having a strong and resilient banking system was necessary to help the economy recover from this crisis.

“Fortunately, Philippine banks are adequately capitalized and have ample buffers to support the sector’s recovery in particular, and the economy as a whole,” it said.

According to preliminary data from the Bangko Sentral ng Pilipinas (BSP), the local banking sector’s capitalization reached P2.35 trillion in April, which is 2.08 percent higher than P2.30 trillion a month ago and 8.9 percent more than P2.16 trillion the year earlier.

BAP added that the Central Bank has helped shore up the financial health of the sector during the pandemic by implementing relief measures. Just last week, the BSP went beyond expectations and decided to cut the interest rate by 50 basis points to 2.25 percent, bringing the overnight deposit and lending facilities to 1.75 percent and 2.75 percent, respectively.

“Lastly, the joint collaboration with the regulators and lawmakers to re-evaluate and amend existing policies in order to sustain the resiliency of the banking industry is important more than ever during these challenging times,” the BAP said.

Apart from raising funds via capital markets, the BAP said that banks could also maximize digital platforms, rationalize operations, innovate products and services and look for new business prospects that cater to the needs of their clientele, among others, to improve capital position.

Staggered approach

The banks have been increasing their reserves for potential loan loss amid higher bad debts during this pandemic. According to BSP data, allowance for credit losses and gross nonperforming loans reached P237.84 billion and P252.12 billion, respectively, as of April.

The BAP said, however, that banks can also protect their credit portfolio and financial position by opting to use a staggered approach in recognizing bad debt provisions.

“Furthermore, staggered booking of allowances for credit losses over a maximum period of 5 years for all types of credits extended to individuals and businesses directly affected by Covid-19 are allowed,” the group said.

This is one of the relief measures for the financial sector outlined in
BSP Memorandum M-2020-008.

The BSP reported earlier that bad loans could reach P556.6 billion this year due to the pandemic, an amount equivalent to 5 percent in NPL ratio. Of this amount, 50 percent to 80 percent or around P278.3 billion to P445.28 billion will no longer be recovered.

Safety first

Apart from protecting their capital, banks should be able to ensure the safety of their employees and customers amid the pandemic, the BAP said.

This does not only cover the physical branches but the digital space as well. The BAP said that “strong cybersecurity is vital during this time when a substantial shift to digital transactions is evident.”

“Safety of their people in day-to-day banking operations is a paramount concern of the banks,” it added.

The BSP earlier launched a roadmap that aims to increase the digital transaction to 50 percent in the Philippines by 2023.


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