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7 Philippine banks have $386M in exposure to Lehman

By Doris Dumlao
Philippine Daily Inquirer
First Posted 01:57:00 09/19/2008

Filed Under: Central Banks, Banking, Crisis

MANILA, Philippines?Seven banks in the Philippines have a total of $386 million in exposure to bankrupt US investment banking giant Lehman Brothers, according to the central bank?s estimates, but the banking system is widely believed to be in a good position to withstand the world?s worst financial shake-out.

Even assuming zero recovery of their exposure to Lehman, the fallout for the seven banks is not expected to exceed one percent of their total assets.

According to estimates by the central bank, Bangko Sentral ng Pilipinas (BSP), obtained by the Philippine Daily Inquirer, the retail tycoon Henry Sy?s Banco de Oro Unibank has the biggest exposure to Lehman at $134 million, followed by state-owned Development Bank of the Philippines (DBP) at $90 million.

The BSP data show Metropolitan Bank and Trust Co. (Metrobank) has an exposure of $71 million, Rizal Commercial Banking Corp. (RCBC) $40 million, Standard Chartered Bank?s Manila branch $26 million, Bank of Commerce $15 million, and United Coconut Planters Bank (UCPB) $10 million.

As a percentage of total assets of the individual banks, the exposures are as low as 0.5 percent and as high as 1.7 percent, according to the estimates, which were discussed at a meeting of the BSP policymaking body, the Monetary Board, on Thursday.

Banco de Oro, Metrobank and RCBC reported earlier this week that they had made provisions for their soured exposures to Lehman.

The BSP data show Banco de Oro had set aside a buffer equivalent to 60 percent of its exposure and Metrobank and RCBC had provided for 70 percent and 52 percent of their exposures, respectively.

DBP has put up a provision of about P3 billion for its exposure to Lehman, its spokesperson said. ?So we are fully provided for,? the DBP spokesperson said. ?Of our exposure, $10 million represents debt papers issued by Bank of America and arranged by Lehman, while $80 million represents notes issued by a local subsidiary of Lehman.?

Bank of Commerce president Raul de Mesa said the bank?s exposure was fully provided for. ?There?s no impact on earnings this year. We?ll equal or hopefully make better than last year?s net income of P520 million,? he said last night.

Philippine Daily Inquirer sources said UCPB, a government-sequestered bank, would provide for 100 percent of its exposure to Lehman.

No cause for concern

Credit watchers and private analysts agree with the BSP pronouncement that the Philippine banks? exposure to Lehman was no cause for concern.

The potential cost to Philippine banks is estimated to be much lower than that in the more sophisticated Asian countries like Japan, South Korea and Taiwan.

Exposure to Lehman by financial systems in South Korea and Taiwan are estimated at $720 million and $2.5 billion, respectively.

Global credit watchdog Standard & Poor?s said Thursday the direct exposures of banks in Asian emerging markets to Lehman were not expected to be significant enough to cause a downgrade in credit ratings.

?A few Taiwanese, Philippine and Chinese banks appear to have more direct exposure to Lehman Brothers entities,? said S&P credit analyst Ritesh Maheshwari. ?However, Asian banks? strengthened balance sheets, as a result of healthy profits over the vibrant economic environment during the past half a decade, can withstand the impact of likely losses from direct exposure, without rating downgrades.?

In the case of Philippine banks, most exposures are in the form of credit-linked notes, corporate bonds and loans to Lehman and its subsidiaries, Maheshwari said, and added that Asian banks? exposure to structured finance products was not enough to do substantial damage.

?We continue to believe that the risk to Asian banks is more from the impending economic slowdown and market turmoil than from direct exposure to distressed US financial institutions,? he said.

Continuing turbulence

The BSP has allayed fears over the adverse impact of Lehman?s collapse but nonetheless urged Philippine banks to brace for a continuing turbulence among large US financial institutions.

To address the spillover impact of the crisis on Wall Street, Asia-Pacific central banks are closely coordinating efforts.

BSP Deputy Governor Diwa Guinigundo said, ?Based on our informal discussions with EMEAP [Executives Meeting of East Asia Pacific Central Banks], so far the impact of the financial turbulence has been minimal with respect to the banks? exposure to the Lehman Brothers, Merrill Lynch and even AIG. But of course, what?s important at this point is all of the central banks continue to monitor the developments.

Guinigundo spoke at a press briefing on the country?s balance of payments.

He said the central banks in the region were in a resilient position to provide liquidity to the financial markets whenever needed.

New York-based think tank Global Source, in a Philippine report titled ?Okay So Far,? released Thursday, said the damage to the Philippine financial system from the Lehman collapse was ?limited.?

?This is most likely due to local banks? familiarity and access to high-yielding Philippine government papers for their dollar investments as well as the relative lack of sophistication of domestic financial players, which reduces the attractiveness of structured products in the local market,? said the report, written by Romeo Bernardo and Marie Christine Tang.

US Ambassador Kristie Kenney expressed confidence that the Philippine economy would withstand the impact of the turmoil in the US financial system.

?The US situation is going to impact around the world but the Philippine economy stands on solid footing,? Kenney said. With a report from Cynthia D. Balana; with editing by INQUIRER.net

Copyright 2015 Philippine Daily Inquirer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.




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