RP banks do not need 'stress test' - Bangko Sentral

MANILA, Philippines – The Philippine banking system does not need to be subjected to a “stress test” similar to what banking regulators are implementing in the US.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla Jr. said while there is credit stress in the banking system, it was nowhere near the levels of the 1997 Asian financial crisis.

“Philippine banks did not have toxic assets like the US banks, and they were not engaged in overlending,” Espenilla said on the sidelines of the formal launching of the safe and responsible banking campaign of the Philippine Deposit Insurance Corp. (PDIC) yesterday.

Chamber of Thrift Banks (CTB) president Pascual M. Garcia III said the Philippine banking system already had been exposed to a stress test from the failure of US financial giants Lehman Brothers, Bear Stearns, American International Group (AIG), among others.

“It is the US banking system that needs one,” Garcia, who is also the president and chief executive officer of Philippine Savings Bank (PSBank), said.

Nineteen of the largest US banks are presently undergoing a stress test as regulators are looking at the real conditions of its financial system.

Regulators want to determine from the tests if additional capital is required to keep the banks afloat. If so, regulators must determine if capi-tal can be raised through private funds or if the National Government will have to fund the distressed banks.

Initial reports indicate that a number of US banks require capital infusion.

Espenilla said Philippine banks have been raising funds from the capital markets for expansion purposes, rather than survival.

“They are looking for opportunities for expansion in the market. The appetite is there,” the BSP official added.

Meanwhile, the country’s banking system has been reflecting healthy asset quality.

The BSP had earlier expected the non-performing loans (NPLs) of the system to increase to between seven and eight percent.

Recent reports, however, show that bad loans in April stood at 3.65 percent or a mere 0.09 percentage point gain from 3.56 percent a year earlier.

Even the International Monetary Fund (IMF) recognized the healthy state of the Philippine banking system.

In a report, the IMF said: “Another important aspect is your commitment to maintain strong capital positions not simply for compliance but for prudent control of leverage. Your adherence to maintain capital adequacy above our regulatory floor rate of 10 percent reflects commitment toward prudential control and financial governance.’”