Philippine banks ready vs shocks – BSP

MANILA, Philippines — The country’s banking sector is strong and stable amid the reforms adopted over the past decade, according to the Bangko Sentral ng Pilipinas.

BSP Governor Nestor Espenilla Jr. said in his speech during the Philippine Investment Forum hosted by Euromoney the non-performing loan (NPL) ratio of the industry stood at a mere 1.4 percent despite the 21.1 percent jump in the outstanding loans of universal and commercial banks.

“The banking system is strong and stable. Banks are lending more, and to productive sectors,” he said.

He pointed out the capital adequacy ratio of banks stood 16 percent on consolidated basis as of end-June, double the international minimum of eight percent.

“Our comprehensive risk-based supervision approach ensures that our banks operate in a safe and sound manner and that the economy is guarded against shocks that may affect financial sector stability,” he said

Espenilla said the banking system today is very different from the banking system before the Asian Financial Crisis because of bold reforms undertaken by the regulator.

The BSP chief said there are those who raise overheating concerns and some also worry of a potential asset bubble in the real estate sector.

The credit-to-gross domestic product (GDP) ratio of 63.6 percent as of the second quarter is still one of the lowest by far in Asia, indicating relatively low overall leverage.

“Our data and analysis suggest otherwise. And we are vigilant to avoid these risks. At any rate, regulations are in place that require banks to manage their exposures to the real estate sector,” Espenilla said.

Last September, the Monetary Board approved enhancements to bank reportorial requirements on exposures to the real estate sector and to infrastructure projects.

“More granular information are to be submitted for the BSP to better monitor the extent of bank exposure to real estate and infrastructure projects. We are ready to implement appropriate macro-prudential measures as the situation may require,” he said.