Philippine banks can weather fiscal storms, say BSP

With the debt crisis in Europe next year expected to go from bad to worse, possibly causing some conglomerates to default on their loans, the Bangko Sentral ng Pilipinas is confident that the country’s banks will be able to stay afloat, remaining adequately capitalized.

BSP Governor Amando Tetangco Jr. said that, based on the results of a recent “stress test,” the capitalization level of universal and commercial banks in the country would remain above the 10-percent regulatory requirement even if conglomerates were to default on as much as a fifth of all loans extended to them.

“Banks were stress-tested based [on their] credit exposure to conglomerates, and results showed that their CARs [capital adequacy ratios] will remain above 10 percent,” Tetangco told reporters.

Currently, the average CARs of universal and commercial banks in the Philippines stand at 15 percent on “solo” basis, and 16 percent on “consolidated” basis, Tetangco said. The latter is a measure of capitalization of banks and their subsidiaries.

CAR, a closely watched indicator of a bank’s financial health, weighs an institution’s capital against its assets exposed to risks.

Banks are now adequately capitalized due to the rise in their profits, which are backed by an increase in demand for loans and other banking services. This increase in demand for banking services, in turn, is attributed to a growing economy.

Rising incomes prompt enterprises to embark on investment initiatives, which may be partly financed by loans from banks.

In 2012, most economists believe that the debt crisis in the eurozone will persist, if not worsen.

Tetangco said that the Philippines would withstand the problems brought on by the crisis overseas, but he did admit that the domestic economy would not be left unscathed.

He said the worsening situation in the eurozone could dampen the appetite of investors globally, pushing them to simply hold on to their cash. In that event, investments in emerging economies like the Philippines may be pulled out.

“If the Euro problem worsens, then there is the possibility of deleveraging, which can adversely affect the Philippines,” Tetangco said. “Nonetheless, we have a buffer.”

He said the country’s reserves of foreign currencies, at over $76 billion, would be enough to contain the effects of a sudden outflow of foreign funds.

The country has sufficient dollars to meet its import and foreign debt requirements in the months to come, Tetangco explained.