Bangko Sentral sees limited fallout from Ukraine crisis

Benjamin Diokno

The direct impact of the Russia-Ukraine war on the Philippines is “inconsequential,” representing less than 1 percent of merchandise trade and banks’ financial exposure, but the conflict might make a dent on inbound remittances, the Bangko Sentral ng Pilipinas (BSP) chief said.

BSP Governor Benjamin Diokno on Monday told reporters the Philippines has limited economic and business links with either of the countries at war.

Besides, both Russia and Ukraine are very far from the Philippines which, in turn, is enjoying strong macroeconomic fundamentals, he noted.

In terms of cross-border financial exposure of Philippine banks to Russia and Ukraine, these were estimated at less than $1 million dollars each—$672,200 and $960,200 in terms of deposit liabilities, respectively, as of the end of September 2021.

“The sum [of these liabilities] is less than 1 percent of the [Philippine] banking system’s total deposit liabilities as of the same period,” Diokno said, adding that Philippine banks have no cross-border financial assets in either Russia or Ukraine.

However, two Philippine banks have investments in two Russian banks—the VTB Bank Public Joint Stock Co. and the Russian Agricultural Bank —amounting to P254.12 million as of December 2021. This is less than one percent of the total assets under management of these banks.

Meager trade flows

In terms of trade, the country generated $120 million in export receipts from Russia and $5 million from Ukraine in 2021. Combined, these represented just about 0.2 percent of total exports last year.

“In brief, trade financing transactions of banks with Russian counterparts are inconsequential,” Diokno said.

But in terms of inbound person-to-person remittances, the BSP is aware of risks that the war could indirectly affect inflows, even if less than one percent of money transfers in 2021 had come from Russia and Ukraine.

Last year, personal remittances from overseas Filipinos reached a record-high $34.9 billion. This is expected to grow by 4 percent this year and next year.

Maybank said in a March commentary that Southeast Asian nations like the Philippines were vulnerable to developments in the European Union, which may fall into recession under a prolonged war due to their dependence on energy imports from Russia.

Maybank noted that Europe depended on Russia for about a quarter of its crude oil and 40 percent of natural gas.

The European countries that are seen most reliant on Russian fuel are Hungary, Czech Republic, Latvia, Slovakia, Italy and Germany.

Russia accounts for just 0.04 percent of total foreign direct investment inflows, or $314 million, to Association of Southeast Asian Nations (Asean) between 2016 and 2020, Maybank said.

“But a broader European downturn will impact Asean exports and FDI,” it added. INQ