PH banks can weather Hanjin default, BSP assures public

Banking regulators on Friday moved to reassure the public about the strength of the financial system after the bankruptcy of a Korean-owned shipbuilder in Subic Bay triggered a $412-million default on local lenders—the biggest in Philippine corporate history.

In a statement to the Inquirer, the Bangko Sentral ng Pilipinas said the banking industry has enough capital buffer to weather the sudden collapse of Hanjin Heavy Industries and Construction Corp. Philippines, which operates a $1.6-billion shipyard in Zambales employing 23,000 workers.

Notably, BSP Deputy Governor Diwa Guinigundo refrained from commenting on the financial health of the individual banks with large loan exposures to Hanjin, saying it would be “premature” for the regulator to comment on a matter that is pending in the judiciary, referring to the corporate rehabilitation petition Hanjin filed on Jan. 8 with the Olongapo regional trial court.

Guinigundo assured the public, however, that the combined loan amount— worth P21.6 billion at the prevailing exchange rate—was “negligible” based on the central bank’s “initial assessment” relative to both total loans and total dollar loans of the banking system.

“Our banks as a whole are very strong and more than adequately capitalized, their assets continue to grow and the quality of their loans based on nonperforming loan ratio is less than 2 percent,” he said in a text message on Friday morning.

As the shipbuilder defaulted on its obligations, the concerned financial institutions—Rizal Commercial Banking Corp., Land Bank of the Philippines, Metropolitan Bank and Trust Co., Bank of the Philippine Islands and Banco de Oro Universal Bank—decided to move to take control of the firm, while agreeing among themselves to act collectively to preserve the firm’s assets.

“We agreed to work together to protect the interests not only of the banking industry but of the Philippine economy, as well, given the large number of people Hanjin employs in Subic,” the president of one of the creditor banks said, explaining that his peers from other creditor banks had agreed that “no one will jump the gun” to seize collateral ahead of other creditors, an act that would trigger a free-for-all on Hanjin’s assets and jeopardize the rehabilitation plan that had been filed in the local courts.

Prior to this week’s default, the local banking system held a total of P260 billion in soured loans compared to total bank lending of P9.7 trillion, for a nonperforming loan ratio of 2.67 percent in late 2018. Including the Hanjin bad loans, the country’s nonperforming loan ratio could rise to 2.89 percent.

Nonetheless, Guinigundo said that the banks in compliance with the BSP’s regulations have risk management systems in place.

“They are very liquid and their profitability has been sustained,” he said. “They can very well handle and manage this specific case.”

In separate interviews with the Inquirer, the heads of Hanjin’s creditor banks said that the provisional agreement among members of their loose consortium might eventually call for the forced sale of the shipyard to a strategic investor as a way for them to recover their losses.