Banking system ‘safe and sound’, says BSP

THE domestic banking system remains “safe and sound,” the Bangko Sentral ng Pilipinas (BSP) said on Tuesday as concerns over the state of the global financial system mounted.

“We have shown our resilience through the pandemic, and we continue to be strong in the face of the ongoing turbulence in the global markets,” the central bank said in a statement.

Financial markets were roiled after two US banks collapsed in quick succession over the weekend and after a major investor balked at funding Credit Suisse, which later secured a $54-billion lifeline from the Swiss central bank. On Thursday, meanwhile, large US banks injected $30 billion to shore up First Republic bank.

The Bankers Association of Philippines earlier this week also said that the US bank failures would have “no substantial or material impact on Philippine banks,” saying that local institutions were well-diversified, and maintained capital and liquidity ratios higher than those required by the BSP.

The central bank, in a statement, said it recognized the action taken by authorities to address contagion risks and would “respond accordingly as market conditions evolve.”

“Our long-standing efforts in consultation with the industry in setting prudent standards and executing risk practices remain the key pillar in safeguarding the interests of the Filipino people,” it added.

“We reiterate our earlier statement that our banks do not have any material exposure to the failed institutions.”

In a related development, S&P Global Ratings said that banks in the region would be able to withstand any fallout from the collapse of Silicon Valley Bank (SVB), which failed last Friday following a bank run.

“Asia-Pacific banks are wellplaced to absorb potential contagion effects ... direct exposures are negligible, and secondary impacts are manageable,” the ratings agency said on Thursday.

“Of the about 380 banks and nonbank financial institutions that we rate in the region, we anticipate no rating actions directly related to the SVB default,” it added.

Seventeen out of 18 banking jurisdictions, including the Philippines, were noted to be stable, with the exception being New Zealand.

Industry risk trends are also stable in all 17 jurisdictions and about 84 percent of S&P’s bank ratings have a positive outlook with a ‘BBB+’ median rating level.

Contagion risks, S&P said, “could take hold in the nonbank financial institution (NBFI) sector, more so than the bank sector.”

“It typically involves smaller, more concentrated and less systemically important entities,” it added.

Still, S&P believes that the direct exposure of Asia-Pacific banks and NBFIs to SBV and more generally to other US regional banks is “not significant.”

It warned, however, that “stresses that banks can comfortably take in their stride could morph into bigger problems that are difficult to predict.”

“They could also connect or combine with other stresses causing a confluence of negative developments that could yet test buffers across the Asia-Pacific banking sector,” it added.

Predicted secondary effects could involve increasing risk aversion by investors, which may result in “higher funding costs or other negative consequences.”