BSP cites need for measures to boost banks

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) stressed the need to implement measures to further strengthen the local banking industry to survive the further spillover effects of the sovereign debt crisis in Europe as well as the economic slowdown in advanced economies led by the US.

In its Status Report on the Philippine Financial System for the second semester of 2011, the BSP said some concrete actions have to be undertaken in order to harness the inherent strengths of Philippine banks into future gains and at the same time provide the industry sufficient vantage points to withstand any potential spillover effects of the euro crisis and global economic slowdown.

 “Central to the Philippine story of fortitude and resilience is a banking system that delivers consistent performance amidst any market conditions and more so, beyond expectations,” the BSP said in the report.

For the last 15 years, the central bank said total resources of banks posted a compound annual growth rate of 7.1 percent while net profits of the industry almost tripled and asset quality ratios were at historic lows and even lower than their pre-1997 Asian Financial crisis level of around four percent.

Furthermore, the BSP pointed out that local banks have ample headroom to adjust to higher capital rules under Basel III by 2014 as solvency ratios of banks were well-above regulatory and international standards.

The BSP said in the report that there is a need to properly measure, monitor and mitigate possible exposures of the domestic banking system to European bank debts regardless of the size and magnitude of such exposures to sustain such commendable performance in the long run.

Data showed that total foreign exposures amounted to only $1.9 billion or P84 billion and accounted for 1.1 percent of total system-wide assets contradicting the report made by the World Bank that local lenders have $15-billion exposures in European banks.

 “Latest BSP survey of the exposures of domestic banks to the Eurozone area allays these threats to domestic financial stability,” it added.

The BSP further added that there are only five European bank branches and subsidiaries operating in the Philippines whose combined asset size of $8.3 billion or P362.3-billion accounts for less than five percent of total resources of the local banking system.

 “Pressures on European banks have intensified on the back of the ongoing Greek debt tragedy besetting the current European financial stage. Market watchers feared that this may result in the impairment of cross-border lending for trade financing activities including possible loss of parent-bank support for local lending,” the report said.