Banking system ‘safe and sound’, says BSP

The country’s banking system remains “safe and sound,” Bangko Sentral ng Pilipinas (BSP) said on Tuesday amid rising concerns about the health of the global financial system.

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

Financial markets were rattled after two U.S. banks collapsed in rapid succession over the weekend and after a major investor pulled out of funding to Credit Suisse, which later received a $54 billion lifeline from the Swiss central bank. Meanwhile, on Thursday, major US banks injected $30 billion to support First Republic Bank.

The Bankers’ Association of the Philippines earlier this week also said that US bank failures “won’t have a material or significant impact on Philippine banks,” saying local institutions are well diversified and maintain capital and liquidity ratios higher than required by the BSP.

The central bank said in a statement that it recognizes the actions taken by the authorities to address the risks of contagion and will “respond accordingly as market conditions develop.”

“Our longstanding efforts in consultation with the industry to set reasonable standards and apply risk management practices remain a key element in advancing the interests of the Filipino people,” he added.

“We reiterate our previous statement that our banks do not pose any significant risk to failing institutions.”

In this regard, S&P Global Ratings said that banks in the region will be able to withstand any consequences of the collapse of the Silicon Valley Bank (SVB), which went bankrupt last Friday due to a bank run.

“Banks in the Asia-Pacific region are well positioned to manage potential contagion effects… direct risks are negligible and spillovers are manageable,” the ratings agency said on Thursday.

“Of the approximately 380 banks and non-banking financial institutions that we assess in the region, we do not expect any rating action directly related to the SVB default,” it added.

Seventeen of the 18 banking jurisdictions, including the Philippines, were rated stable, with the exception of New Zealand.

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

According to S&P, contagion risks “may take hold in the non-banking financial institutions (NBFIs) sector to a greater extent than in the banking sector.”

“It usually involves smaller, more concentrated and less systemically important organizations,” he added.

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

However, it warned that “stresses that banks can easily absorb can turn into more serious problems that are difficult to predict.”

“They may also be linked or combined with other stresses causing a constellation of negative events that could yet test buffers in the Asia-Pacific banking sector,” he added.

Projected spillovers could include increased investor risk aversion, which could lead to “higher funding costs or other negative impacts”.