MANILA -- The financial collapse of Hanjin Heavy Industries and Construction Philippines will not drag the local banking sector down with it, despite the substantial loan exposure of five major banks, a Fitch Solutions study said.
In a report dated January 14, 2019, the economic research firm said the USD412 million combined loan exposure of five domestic financial institutions is the largest to date after the USD386 million losses during the 2008 global financial crisis.
These banks include the state-owned Land Bank of the Philippines (Landbank), Yuchengco-led Rizal Commercial Banking Corporation (RCBC), Ty-led Metropolitan Bank & Trust Company (Metrobank), Ayala-led Bank of the Philippine Islands (BPI) and Sy-led Banco de Oro Unibank (BDO).
Despite this, the study pointed out that the problem caused by the folding up of Hanjin Heavy Industries, which operates a USD1.6-billion shipyard in Subic Bay Freeport Zone (SBFZ), “is not systemic and is unlikely to threaten financial stability in the country in the near-term.”
It attributed its outlook to the industry’s strong capital buffers and low non-performing loans.
Another plus for the banking sector is the decision of the five banks to face the issue collectively and take control of Hanjin’s assets without seizing it unilaterally.
“This should give the company some time to rehabilitate, and there has been precedent of lenders being able to recoup their losses after the period,” it said, citing that “even if in the event that the consortium of Philippine banks call for the forced sale of the Hanjin shipyard to strategic investors, the value of the company’s assets is said to outstrip its loan liabilities.”
Fitch, on the other hand, pointed out that “operating environment will likely become more challenging.”
This, as it projects the domestic economy to post a growth of 6.1 percent this year, slightly lower than its 6.2 percent forecast for 2018.
“We believe that the Philippine economy will struggle to reverse its waning growth momentum over the coming quarters owing to tighter monetary conditions, the potential for a re-escalation of global trade tensions, as well as a deteriorating business environment,” it said.
“Combined with rising interest rates both globally and domestically, as well as lower risk appetite, these factors will likely see investment slowdown over the coming quarters,” it added. (PNA)
