MANILA – The Bangko Sentral ng Pilipinas (BSP) on Monday said domestic banks remain strong amidst the increased challenges brought by the collapse of two United States-based banks, citing their lower market risk exposure and diversified lending base.
In its Notes for the President regarding the stability of the domestic banking system, which BSP Governor Felipe Medalla shared to journalists, the central bank said Philippine financial institutions are “less susceptible to changes in fair value whereas, security holdings of SVB (Silicon Valley Bank) (were) larger in relation to their capital.”
SVB is one of the two banks that collapsed more than a week ago due to bank run as the California-based financial institution faced some financing health issues. This is the second largest bank failure in the US to date.
It was followed by the collapse of New York-based Signature Bank after its depositors withdrew large amount of funds following the news about SVB.
Despite these developments, the BSP said domestic banks are more resilient than US banks because the formers’ losses, “including estimated net unreleased losses on security holdings due to the rising interest rate environment, are expected to be smaller (as a percentage of assets).”
It attributed this to several factors, one of which is the larger hikes in the Federal Reserve’s key rates which came from lower levels compared to the BSP rates.
The Fed’s key rates have been increased by a total of 450 basis points since March 2022, bringing it to between 4.50 to 4.75 percent as of Feb. 1, 2023.
BSP’s key rates have been hiked by a total of 400 basis points since May 2022, to 6 percent for the overnight reverse repurchase (RRP) rate.
The RRP rate was reduced to record-low 2 percent last year to help cushion the impact of the pandemic on the domestic economy by encouraging lending.
The Notes from the central bank’s Supervisory Policy and Research Department (SPRD) further said yield curve in the Philippines “did not invert similar to the US yield curve”, and bond holdings of US banks have longer tenors, at 30 years the most, compared to the maximum tenor holdings of domestic banks at 15 years.
It said domestic banks also have strong risks governance and risk management system and “maintain sufficient capital to absorb unexpected losses from policy rate increases.”
“(Philippine banks) are highly liquid and tend to rely on a wide depositor base compared to US banks,” it said, adding domestic banks “do not have material exposure to the failed banks.”
Despite the resiliency of the domestic banking system, the BSP said it “will continue to closely monitor developments, assess their impact on the banking system and respond accordingly.”
Meanwhile, banking giant UBS has agreed to buy its rival, Credit Suisse, for about USD3.25 billion, a move seen to address sentiments and avoid a global banking crisis.
Credit Suisse earlier said it plans to borrow up to USD54 billion (50 billion francs) from the Swiss National Bank to help address the drop in its shares and to reassure its investors and customers.
Medalla said the deal “means CSG (Credit Suisse Group AG) 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,” he added. (PNA)
