Regulators Wednesday allayed fears of a spillover of the global financial crisis to the Philippines, assuring the public that the banking and the insurance industries are secure from similar threats.

Philippine banks are adequately capitalized and the banking industry in no way faces the possibility of a liquidity crunch, said Governor Amando Tetangco Jr. of the central bank, Bangko Sentral ng Pilipinas (BSP).

“The country’s banking industry implemented several reforms in the past years, including in the areas of risk management. Our banks have enough resources to absorb whatever shocks there is in the external environment,” Tetangco said at the Philippine Midyear Economic Briefing, in the Makati business district.

Exposure of Philippine banks to the bankrupt US investment giant Lehman Brothers is “minimal,” as only “0.3 to 0.4 percent” of the banks’ total assets is exposed to the collapsed the 158-year-old investment bank, he said.

It amount to P20.3 billion, or about $430 million at the prevailing exchange rate, compared with the banking industry’s asset base of P5.07 trillion.

Banco de Oro Unibank (BDO) and Metropolitan Bank and Trust Co. (Metrobank) on Monday said they had put up loss provisions totaling $94 million for their exposures to products sold by Lehman and its affiliates.

BDO, the second-largest bank by assets, was the first one to file a disclosure to the Philippine Stock Exchange, saying it had set aside P3.8 billion ($80 million) as a buffer for its investment exposure to Lehman, but did not say how much its total exposure was. “Despite these provisions, BDO still expects to post a reasonable net income for the year,” it said.

Metrobank, the biggest in assets, also reported that it had put up $14 million in provisions for its exposure to Lehman bonds in the amount of $20.4 million.

Other Philippine banks have come forward to declare the extent of risks they face in the wake of the subprime debt crisis in the United States after the collapse of Lehman and Bank of America’s takeover of investment bank Merrill Lynch.

Rizal Commercial Banking Corp. (RCBC) said in a disclosure to the stock exchange Wednesday that it was allocating P980 million (about $20.8 million) for its $30-million (P1.4-billion) investment in “structured products” linked to Philippine bonds and issued by Lehman.

A structured product is a financial instrument tailor-fitted to a specific investor need. It refers to a generally prepackaged investment that is based on derivatives, such as a single security, a basket of securities, options, indices, commodities, debt issuances and foreign currencies.

State-owned Development Bank of the Philippines also has a very small exposure to Lehman’s financial products, its president Reynaldo David said in a phone interview from abroad with the Philippine Daily Inquirer.

Security Bank Corp. said it did not have any direct or indirect exposure to Lehman but it had an exposure of $10-million (about P480 million) to Merrill Lynch.

Five other major banks—Bank of the Philippine Islands, China Banking Corp., Union Bank of the Philippines, Philippine Savings Bank of the Metrobank group and state-owned Land Bank of the Philippines said they were in no danger from the financial troubles of Lehman or the Bank of America’s buyout of Merrill Lynch because they had no exposure to products of both financial giants.

Tetangco said the banking industry’s assets had been growing steadily over the years to its present size from below P4 trillion in 2001.

He also noted that the BSP was ready to help any bank that would suffer from liquidity problems through its existing loan windows.

Insurance firms

Insurance Commissioner Eduardo Malinis also attested to the strength of insurance companies in the Philippines.

Malinis said investments of insurance companies were placed mostly in Philippine government securities and only a small part is placed in risky investments offshore.

Insurance companies in the Philippines are adequately regulated, as the Insurance Code sets limits to the investment instruments that insurance companies can be exposed to, he said.

“The crisis in the United States is not seen to substantially affect our insurance industry. Investments of the insurance companies are mostly in domestic instruments,” Malinis said in a telephone interview.

Sun Life Financial Philippines said Wednesday that it had no exposure to Lehman.

In a statement, the local unit of the Canadian insurance giant said it “remains stable and secure and continues business as usual.”

“The majority of SLF Philippines’ life, pre-need and mutual fund assets are invested locally,” the company said. “SLFP has a long heritage in the Philippines ... and currently provides over 1.1 million Filipinos with products and services to help them meet their financial needs.”

Sun Life Financial Philippines’ parent firm, Toronto-based Sun Life Financial Inc., announced that globally it held Lehman bond securities worth 334 million Canadian dollars at par value.

“This represents less than 0.4 percent of the group’s invested assets,” it said.

“Globally, Sun Life is in a solid financial position, and maintains financial strength ratings which are among the highest of all insurers in North America,” it said. “Sun Life has a strong balance sheet and is well capitalized beyond minimum requirements.”

American International Group Inc. (AIG), the parent company of Philippine American Life and General Insurance Co. (Philam), said Wednesday its life insurance, general insurance and retirement services businesses, including its Asian operations, “continue to operate normally and remain adequately capitalized and fully capable of meeting their obligations to policyholders.”

“AIG continues to pursue alternatives to increase short-term liquidity in the parent company,” Philam said in a statement.

“Those plans do not include any effort to reduce the capital of any of its subsidiaries or to tap into Asian operations for liquidity,” the statement said.

“The insurance policies written by AIG companies are direct obligations of its regulated subsidiary insurance companies around the world,” it added.

Bank capital and profits

In a text message to the Philippine Daily Inquirer, RCBC president Lorenzo Tan said the bank had “$30-million counterparty risk on credit-linked notes to ROPs [Republic of the Philippines cash bonds]. We have reallocated our excess provisions. There would be no effect on our income or capital.”

RCBC executive vice president Elbert Zosa said the bank’s provisions would come from its excess reserves and would ensure that any possible write-down from the Lehman exposure would have been properly and fully provided for.

“This will have no adverse effect on RCBC’s capital base which is at P27.4 billion,” Zosa said.

The bank had a capital adequacy ratio of 20.97 percent as of June 30, well above the 10 percent required by the central bank. RCBC share price was unchanged Wednesday at P16.

Security Bank chief financial officer Carlos Borromeo said that “while the current uncertainty in the global financial markets is a point of concern, Security Bank Corp. has significantly improved its asset quality indices over the last few years.”

In its disclosure of interim financial statements as of June 2008, Security Bank reported an exceptionally low ratio of nonperforming loans at 1.4 percent of total loans and a nonperforming loans cover of 298 percent—over P4 billion in provisions against bad loans, he said.

“It would be premature to start provisioning. We are quite confident of the credit of Bank of America, and it’s not much of a concern to us now,” Borromeo said.

Metrobank said there would be no real impact on its income targets despite the recent Lehman’s collapse.

Metrobank said Tuesday that it also had a P2.4-billion loan exposure to a subsidiary of Lehman. With a report from Doris Dumlao; with editing by INQUIRER.net