BAP: US bank failures will have minimal impact

Philippine bank STOCK prices may have fallen, but the country’s financial sector as a whole is expected to be minimally affected by the effects of the US banking crisis, an industry group said Tuesday.

“The Bankers’ Association of the Philippines (BAP) reassures the Philippine public that recent developments in the US financial system have not had a significant or material impact on Philippine banks,” the statement said.

“Banks have a diversified deposit base that includes all sectors of the Philippine economy, which allows them to constantly meet the liquidity needs of their customers,” he added.

“In addition, banks in the Philippines continue to have capital and liquidity ratios that exceed the requirements set by Bangko Sentral ng Pilipinas.”

The failure of two regional US banks – Silicon Valley Bank (SVB) and Signature Bank – in just two days reverberated through financial markets around the world and raised concerns about the state of the global banking industry.

Get the latest news

delivered to your mailbox

Subscribe to The Manila Times daily newsletters

By registering with an email address, I acknowledge that I have read and agree to Terms of Use And Privacy Policy.

Stock prices reached

Philippine bank stocks tumbled after the SVB crash on Friday, while the financial sub-index fell 1.86% on Tuesday.

Among the biggest losses on the day were BDO Unibank Inc., whose share price fell 2.13 percent, or 2.60 pesos, to 119.40 pesos; Metropolitan Bank and Trust Co. down 4.04 percent, or 2.40 pesos, to 57 pesos per share; and Bank of the Philippine Islands, which fell 1.24%, or 1.30 pesos, to 103.80 pesos a share.

The underlying index of the Philippine Stock Exchange fell 2.31%.

The US authorities took action to contain the effects of bank failures, with regulators reassuring bank customers that they would get all their money back, even though they refused to bail out SVB and Signature.

On Monday, US President Joe Biden told Americans that they “can be sure that our banking system is safe” and that the government “will do whatever is necessary on top of that.” [measures already taken].”

The prudential measures taken by the BSP, the BAP said, have provided “essential support that allows the Philippine banking system to withstand the economic turmoil.”

“BAP continues to work with BSP and other stakeholders to implement reforms that will lead to an even stronger financial system that adequately provides for the financial needs of the banking sector,” he added.

Stop tightening?

The impact of US bank failures could extend to higher interest rates, with some analysts saying the Federal Reserve could pause the tightening cycle to ease pressure on the financial sector.

The collapse of SVB is blamed on the sharp increase in Fed rates, which hit the value of securities owned by the bank.

Central banks are raising interest rates in an attempt to contain rising inflation, and the Fed will have to take into account February price data due on Tuesday US time when it meets March 21-22.

In the Philippines, analysts said the policy-making BSP currency board is likely to order a modest rate hike on March 23 as inflation remains elevated at 8.6 last month. An increase of 50 basis points (bp) was announced in February after inflation hit a 14-year high of 8.7 percent in January.

“At the local level, the cause of inflation is still supply-side and [the] BSP is 1.25 basis points ahead of the interest rate curve, giving it room to slow with a possible 25 basis point increase this month,” said an economist and assistant vice president at Security Bank Corp. Robert Dan Rose.

Suhaimi Ilias, Chief Economist at Maybank Investment Bank, said: “We are not changing our view that the BSP is still on track for another rate hike as inflation remains high and resilient at over 8 percent … and especially in accelerated core inflation, indicating core inflationary pressures.”

Asia Pacific University economist Victor Abola echoed this, saying: “I think local inflation is too high and therefore BSP cannot risk being seen as [being] far behind.”

The global crisis is unlikely to repeat

He added that the collapse of the SVB is unlikely to lead to a repeat of the 2008 global financial crisis, which was caused by banks taking on too much risk.

Among other things, “larger banks have much more liquidity than SVBs.”

“Our banks are still heavily capitalized and should be able to avoid serious threats to the stability of the financial system,” Abola continued.

Nicholas Antonio Mapa, senior economist at ING Bank Manila, said any pause in the BSP would likely only come in May if the inflation trend eases.

Chinese Banking Corporation. Chief Economist Domini Velasquez and her colleague at Rizal Commercial Banking Corp. Michael Ricafort also stated that the local monetary authorities will prioritize reducing inflation.

Meanwhile, Union Bank of the Philippines chief economist Ruben Carlo Asunción said BSP will still have to factor in developments in the US.

We know that these institutions [the Fed and the BSP] always emphasize that they depend on the data. So the release of the US CPI (consumer price index) … will be critical to the advancement of both institutions,” he said.