The Bangko Sentral ng Pilipinas (BSP) said the Philippine banking system and the entire economy can withstand the impact of the blight that has recently engulfed some foreign banks.
BSP Governor Felipe M. Medalla told reporters on Monday that recent developments such as the collapse of some banks in the United States as well as the recent acquisition of Credit Suisse Group (CSG) AG by UBS Group AG through a “government-brokered deal” will not have an impact on the global economy, including the Philippines.
Medalla also assured that the BSP will closely monitor these developments as well as “assess their impact on the banking system and respond accordingly.”
“This means CSG is too big to fail. 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 via Viber.
In a note, the BSP chief assured the President that the banking sector can “withstand possible shocks” that could emanate from the collapse of Silicon Valley Bank (SVB) and Signature Bank.
Medalla also said losses of Philippine banks from rising interest rates are smaller relative to their counterparts in the United States.
He noted that the interest rate hikes of the US Federal Reserve were larger. The US Fed has already raised key policy interest rates by 450 basis points (bps).
The BSP Overnight Reverse Repurchase Rate is currently at 6 percent from 2 percent on May 19, 2022, or 400 bps rate hike over the same policy horizon.
Further, Medalla said, the Philippine “yield curve did not invert similar to the US yield curve.” The US Treasury yield curve, BSP noted, continued to be inverted with 2-year and 10-year US Treasury notes posting rates of 4.14 and 3.56 percent, respectively, as of March 16.
The secondary market government security (GS) yields for the two-year and 10-year tenors, the BSP said, stood at 5.89 and 6.23 percent, respectively, as of March 17.
In addition, Medalla said US banks’ bond holdings have longer tenors of as long as 30 years while Philippine banks mainly hold government securities with residual maturity of up to 15 years.
Based on February 2023 data from the Bureau of the Treasury, BSP said bulk or 63.7 percent at P6 trillion of total outstanding securities issued by the national government have original maturities of 5-10 years.
“The BSP also 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,” Medalla said.
He also noted that Philippine banks maintain a diversified lending base that spans counterparties and industry types as well as in terms of loan quality.
BSP said 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.
Currently, Medalla said, the liquidity coverage ratio (LCR) of universal/commercial banks was at 185.7 percent on solo basis as of end-December 2022, higher than the 100 percent minimum requirement.
The BSP governor noted that 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 a solo basis.
On Monday, reports from Bloomberg quoted Morgan Stanley as saying that Asian economies are in a better position to absorb the impact from the banking crisis.
In the report, Morgan Stanley also stated that monetary policy in Asian countries remain accommodative and was not as restricted similar to the United States.