MANILA, Philippines — The central bank, Bangko Sentral ng Pilipinas (BSP), said Tuesday it was ready to provide cash to banks that might need funds in the aftermath of the collapse of US investment bank Lehman Brothers, although it said the exposure was small.

"Some banks have exposure to Lehman by way of structured products but the amount is small relative to capital and spread out among several banks," BSO Governor Amando Tetangco Jr. said.

But he said the Philippine banking system had enough liquidity and improved capital bases.

“Our banking system has benefited from the reforms made, particularly the increase in their capital and better risk management,” he said. “Nevertheless, we are monitoring the situation particularly or any other potential effects that may arise from recent events.”

Metropolitan Bank and Trust Co. (Metrobank), the Philippine's largest bank by assets, said it had made $14 million in provisions for $20.4 million worth of bonds issued by Lehman.

Banco de Oro Unibank, the second-biggest, said it had set aside P3.8 billion ($80.35 million) in provisions for its exposure to Lehman.

Banco de Oro said with its adjustments its “balance sheet should be adequately covered from potential losses arising from its Lehman exposure."

It added that despite the provisions for its Lehman exposure, it “still expects to post a reasonable net income for the year.”

Metrobank said that apart from the bonds, it also had a loan exposure to a Philippine-based Lehman subsidiary amounting to P2.4 billion. It said the loan was current and the company was operating normally.

No exposures

Bank of the Philippine Islands, the third-biggest bank, has no direct exposure to Lehman and therefore has no need to make provisions, its president Aurelio Montinola III said.

Union Bank of the Philippines also has no exposure to Lehman, its president Victor Valdepeñas said.

The state-run pension fund Government Service Insurance System (GSIS) has “zero exposure to Lehman, whether directly or indirectly,” its president Winston Garcia said.

Garcia said the GSIS’ foreign fund managers—ING Bank and Credit Agricole—were more oriented toward European markets and thus were not exposed to US investments.

The Social Security System, the state-run pension fund for private-sector employees, has “zero exposure to foreign subprime or any foreign investments,” its president Romulo Neri told the Philippine Daily Inquirer.

Philippine Daily Inquirer sources in banking estimated the local financial industry’s exposure to Lehman—directly and indirectly—at “between $300 million and $500 million,” or P14.2-P23.6 billion.

In a disclosure to the Philippine Stock Exchange, Sun Life Financial Inc. said its third-quarter earnings might be affected by its exposure to Lehman.

Sun Life said it “holds $334 million par value of Lehman bond securities and approximately $15 million net value of Lehman derivative instruments.”

Halted dealings

Some foreign banks stopped dealing with Philippine banks on the money markets, interbank call loan markets, swaps and bond trading markets, Philippine Daily Inquirer sources said.

The foreign banks continued to trade on the currency spot market, the sources said.

“Temporarily, the foreign banks have elected not to deal with us,” said a top treasury official at a big local bank. “Maybe it’s a decision to step back, reassess the situation. To say it nicely, maybe they are reassessing country exposure. It’s part of this risk aversion.”

As a result, overnight interbank borrowing rates on the US dollar shot up to 8.0-9.0 percent from 2.5 percent in the morning.

“Most of the foreign banks, especially the European banks, are reassessing their exposure allocations,” the banker said.

Other sources said some foreign banks stopped dealing with local banks on fears that exposure to Lehman might be larger than expected. A foreign banker said everyone now was on a “watch list.”

One banker noted that Lehman, which in the past held golf tournaments abroad for Philippines bankers, might have sold quite a substantial amount of structured products in the Philippines.

Other financial regulators told the Philippine Daily Inquirer that the direct effects of the crisis confidence spawned by the collapse of the 158-year-old Lehman would be “limited, at most.”

A senior banking regulator, speaking anonymously because he did not want to aggravate the jittery market, said that “the total [exposure of local banks to Lehman] is relatively small in relation to overall capital [levels] industry- wide.”

The limited exposure is due in part to the relative simplicity of the local financial market, with many banks preferring basic borrowing and lending operations, compared with their peers abroad which invest heavily in complex financial instruments.

Regulators say this level of exposure can easily be absorbed by the capital buffers of local banks.

Arroyo to conduct briefing

President Gloria Macapagal-Arroyo and her top economic officials will hold a midyear briefing this Wednesday, at which they are expected to announce measures to ease the impact of the US financial crisis.

Finance Secretary Margarito Teves issued a statement Tuesday saying he did not expect Philippine markets to remain depressed for long because of the US financial crisis.

"There could be some risk aversion towards emerging markets, including the Philippines, but we expect this to be temporary," he said. "Our domestic financial markets are fairly stable and should be able to withstand these external shocks."

Philamlife

Philippine American Life and General Insurance Co. (Philamlife), a unit of troubled insurance company American International Group (AIG), issued a statement saying its financial health was affirmed by the Insurance Commission.

“Philamlife remains to be the largest insurance company in the Philippines with the strongest balance sheet in the industry,” the statement quoted Insurance Commissioner Eduardo Malinis as saying.

“Philamlife is adequately capitalized and its customers’ and policyholders’ interests are protected with the company’s financial strength.”

“With its vast resources, Philamlife is capable of meeting its commitments and obligations to its clients,” the statement said. It added that its investments were concentrated in marketable Philippine government securities, corporate bonds and blue-chip equities. With reports from Doris C. Dumlao, Elizabeth Sanchez-Lacson and Daxim L. Lucas