PH exposure to euro zone minimal

The Bangko Sentral ng Pilipinas on Friday said that the exposure of Philippine banks to the crisis-stricken euro zone was insignificant and local financial institutions were likely to sustain profit growth this year.

A recently concluded survey conducted by the Bangko Sentral ng Pilipinas said that as of June 30, the amount of euro-denominated securities held by Philippine banks stood at only 1.4 percent of their assets. The securities included those issued both by European governments and private entities.

The latest level of exposure was a decline from the 2.9 percent registered as of end-January 2010, the period covered by the previous survey.

“Philippine banks have no significant exposure to the euro zone. Our banking system remains healthy,” BSP Governor Amando Tetangco Jr. stressed during the Philippine Economic Forum held yesterday at the Philippine International Convention Center (PICC) in Manila.

The fiscal and economic woes confronting countries in the euro zone have raised fears of a contagion to affect countries or institutions holding bonds issued by debt-ridden European governments or entities.

Some economists have predicted that a recession in the euro zone was in the offing as the fiscal woes of European governments force them to tighten public spending and look at imposing more taxes.

Banks and financial institutions are expected to be among those to be hit given their practice of investing in portfolio assets to generate income.

Tetangco said that in the case of Philippine banks, their exposure to the euro zone was minimal as euro-denominated securities accounted for just a very small portion of their estimated P7 trillion in assets.

The central bank chief added that banks in the country continued to have a capitalization above the requirement and low levels of bad debts.

But while the Philippine banking sector is not expected to be significantly hit by the cri     sis in the West, the country is not totally unaffected.

Tetangco said the Philippines and any other country could not be fully “decoupled” from problematic Western economies given the globalization of trade and commerce. Europe continues to be one of the biggest export markets and sources of remittances for emerging markets like the Philippines.

The export sector has posted a slowdown in revenue growth due to the anemic global demand resulting from the euro zone debt crisis and the sluggish growth of the American economy.

In recent days, the peso has also shown unusual volatility given the uncertain global economic picture resulting from the crisis in Europe.

Tetangco expressed optimism, however, that the crisis in the euro zone would be temporary as policymakers in the region were already preparing measures to help troubled countries resolve their debt problems.