PHILIPPINE banks have substantial exposures to sectors that have high credit risks because of environmental factors, Moody’s Investors Service warned.
In a research note published on Thursday, Moody’s said the Philippines’ big banks have the second-largest exposures in the Asia-Pacific region to select sectors that have high credit risks linked to environmental factors, next only to China.
Moody’s identified five sectors that are expected to put pressure on banks’ credit risks because they are linked to environmental factors, particularly climate change. These sectors include mining; energy, oil and gas; surface transportation and logistics; steel and chemicals; and, building and construction materials.
The credit watcher’s data showed that big Philippine banks have a total exposure of 22 percent to these sectors, one of the highest in the region. The highest in Asia-Pacific is China’s big banks with an exposure rate of 24 percent.
Following the Philippines is Bangladesh at 17 percent, Indonesia at 16 percent and Vietnam at 15 percent. Banking systems with the least exposure to these sectors include Korea and New Zealand; both at 4 percent and Australia at 5 percent.
“Asia-Pacific economies with weak infrastructure are particularly vulnerable to physical climate risks, which can hurt banks’ asset quality because a natural disaster can damage borrowers’ assets or disrupt their cash flow. Many banks in the region also face asset risks from large exposures to sectors susceptible to carbon transitional risks,” Moody’s warned.
“In addition, legal and reputational risks are increasing for banks in Asia-Pacific as governments advance guidelines and regulations for sustainable financing and disclosure requirements related to climate risks while investors are increasing pressure on businesses and banks to step up efforts to fight climate change,” it added.
Just this week, the Bangko Sentral ng Pilipinas (BSP) announced that it will be issuing the second-phase regulation to allow the banking industry to be more responsive to risks arising from the transition to a low-carbon economy.
This second-phase regulation follows the BSP’s issuance in April last year of a “Sustainable Finance Framework” that encourages the offering of green and sustainable finance instruments.
“This issuance will provide granular expectations on the integration of climate change and other environmental and social risks in banks’ credit and operational risk management frameworks,” BSP Governor Benjamin E. Diokno said.