PH banks insulated from euro crisis
Effect on Asian peers also minimalBy Michelle V. Remo
Philippine Daily Inquirer
Banks in the Philippines are likely to withstand the adverse effects of the ongoing debt crisis in the euro zone, according to international credit rating firm Standard & Poor’s.
S&P said that Asian banks may take a hit, but the impact would not be severe given the current healthy state of their balance sheets.
“We currently consider most of the rated banks in the Asia-Pacific capable of withstanding pressures from the euro zone debt crisis at their current rating levels, given their solid financial profiles and good liquidity,” S&P said in a study authored by its managing director Ritesh Maheshwari and distributed at the sidelines of the ongoing meeting of the Board of Governors of the Asian Development Bank.
Nevertheless, S&P said it may be prudent for Asian banks to prepare necessary measures against the ill effects of the crisis in the euro zone.
One means by which the crisis is seen to affect Asian banks is through deleveraging—the act of liquefying or disposing assets—by banks in the Western region.
The international financial community recently directed regulators worldwide to adopt, in a staggered manner, the provisions of the Basel 3 framework, which is a stricter set of bank regulatory guidelines that call for higher capitalization requirements for banks.
Given the requirement for banks to put up more capital, and given the fact that banks in the euro zone are suffering from weak liquidity positions, they are prone to selling their assets in Asia as a means to raise sufficient capital.
Citing data from the Bank for International Settlements, S&P said as of December 2011, assets purchased by European banks in the Asia-Pacific, including assets bought from Asian banks, amounted to $841 billion.
Another channel of impact is through Asian exports. The euro zone is a major export market for many emerging Asian economies, such as the Philippines.
With the ongoing crisis, Asian exporters may suffer from reduced profits. Consequently, Asian banks may suffer from loan defaults by borrowers from the export sector.
In the case of the Philippines, nearly 13 percent of its export revenues are accounted for by goods sold to the euro zone.
S&P said, nonetheless, that any impact on credit collection performance of Asian banks may not be significant.
“Asia-Pacific banks have limited exposure to the euro zone, and credit costs arising from significant deterioration of these countries are likely to be modest, in our view,” S&P said in the study.
Meantime, deleveraging by European banks is seen by some experts as an opportunity for Asian banks to grow their business in the region.
“European banks’ retreating from Asia is a massive opportunity for Asian banks,” Gilles Plante, chief executive officer of international financial services firm ANZ, said in a forum during the ADB meeting.
“What we find is that some of the gaps [in financial services that may result from deleveraging by European banks] that are happening can be filled in by capital market solutions,” Jose Isidro Camacho, a managing director at Credit Suisse, said in the same forum.
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