Local banks have no exposure to subprime assets – Tetangco

In the wake of the panic over the US subprime credit market, the Bangko Sentral ng Pilipinas (BSP) said it has examined the exposure of banks in similar instruments and found only insignificant amounts in collateralized debt instruments as a whole.

BSP Governor Amando M. Tetangco Jr. told reporters over the weekend that the banking industry’s minimal exposure in collateralized debt obligations (CDOs) accounted for only 0.2 percent of its total assets.

CDOs are a type of asset-backed security and structured credit product that gain exposure to the credit of a portfolio of fixed income assets.

CDOs divide the credit risk among different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated).

According to Tetangco, the banking industry’s CDO portfolio consisted only of senior and mezzanine tranches and no subprime assets.

“We didn’t find any exposure in subprime assets,” Tetangco said. “The CDO assets currently held by banks are A-rated and higher, indicating no risk of a direct impact on the banking sector.”

Monetary officials have been trying to calm the market, saying that the fall-out from the problems in the US credit market is likely to have only a minimal impact on the Philippines.

Tetangco said the BSP is expecting only an indirect impact and since the market had sufficient domestic liquidity, this would limit the effects of the global selloff spurred by jitters over the US subprime market.

“More fundamentally, the increased availability of longer term funding in pesos has also reduced the country’s vulnerability to adverse external market developments,” Tetangco said.

Central banks in Asia have made moves to inject extra cash into banking systems to join the global effort by monetary officials to calm the panic in the credit markets.

Tetangco said that because there was ample liquidity in the system, the BSP had less need to do this than other central banks, particularly the European Central Bank which pumped a record amount of cash into Europe’s money markets to make sure that their banks had adequate short-term funds.

The market has been spooked by fears that the fall-out from the meltdown in the US subprime market would be worse than originally projected.

Although Asian economies have grown less dependent on the US economy for growth and momentum, experts nevertheless said the crisis in confidence in the US subprime market would continue to be felt across markets in Asia.