‘Banks’ exposure to conglomerates normal’

MANILA, Philippines - Loan exposure of big banks to the country’s conglomerates is very well managed and should not be a cause for concern, according to top bank officials.

“Everything is okay. Normal. (There’s) nothing extraordinary going on in the banking circuit,” BDO Unibank Inc. chairperson Teresita Sy-Coson said in an interview on the sidelines of the 20th Bangko Sentral ng Pilipinas (BSP) anniversary dinner reception for the banking industry.

BDO, the banking unit of retail tycoon Henry Sy Sr., is the country’s biggest bank with total resources of P1.24 trillion as of end-2012 and capital of P157 billion.

BDO’s gross customer loans expanded by 16 percent during the first three months of 2013. Correspondingly, BDO accelerated provisioning even as asset quality improved, with gross non-performing loan (NPL) ratio and NPL coverage ratio at 2.5 percent and 140 percent, respectively. It expects its loan portfolio to increase by 12 to 15 percent this year.

Metropolitan Bank & Trust Co. (Metrobank) president Fabian Dee shared the same view with the BDO official.

“Don’t worry about it. All conglomerates are well-diversified so their cash flow comes from different sources,” Dee said.

Metrobank’s loan portfolio grew 15 percent in the first quarter of the year to P523.3 billion, with consumer and middle market segments fueling the demand. Its NPL ratio improved to 1.8 percent from 2.2 percent a year ago.

Controlled by the Ty family, Metrobank had set aside P1.1 billion for NPL losses in the first three months, bringing coverage to 124 percent from 110 percent.

The bank officials made the assurance following the publication of an International Monetary Fund (IMF) study warning the country against large conglomerates with high exposure to bank loans.

For the regulator’s point-of-view, BSP assistant governor for financial supervision research and consumer protection subsection Johnny Noe Ravalo said the banking sector is sound with regard to loan exposure to conglomerates as reflected in the improvement in the banks’ NPL ratios.

“We can take a look at the non-performing loans ratio. And for the last 10 years, it’s going down,” Ravalo said.

Ravalo said the BSP is doing its part in actively monitoring the banks’ loan portfolios.

“We do semestral stress test and the semestral stress test will include default of up to 50 percent of each of the top 12 conglomerates,” the BSP official said.

The stress test, Ravalo said, does not only include the parent firm of the conglomerate but all its subsidiaries.

He said “banking industry is able to survive those types of extreme value stress tests.”

Ravalo also noted that most of the conglomerates in the country are highly-diversified, thus spreading any risks if there are any.

“Yung conglomerate naman natin dito hindi lang single business na kapag tumaob yung industriya nya, taob na lahat. These are very diversified businesses,” he said.

He also pointed out that this is not new to any IMF report and this is not peculiar to the Philippines.

“That’s not new. Every time that the IMF has an article for review, they always comment to take a look at conglomerate exposures. Also, globally, the exposure to single entities that is big is now being examined so this is not peculiar to the Philippines,” he said.

Ravalo believed that it should be the quality of lending that should be examined.

“I don’t think we should really be looking at whether that banks are lending to conglomerates. We should be asking whether quality of the lending is deteriorating. We don’t have any evidence that suggest it is deteriorating. It’s not as if we don’t look. As long as it’s on the books of the banks whether by economic activity and then you set up yung parang framework mo. What are the counter party risks? You are really proactive now,” he said.