Evergrande woes unlikely to dent Philippine banking system

Lawrence Agcaoili - The Philippine Star

MANILA, Philippines — The possible collapse of debt-troubled Evergrande, China’s second largest real estate company, is unlikely to jolt the Philippine banking sector, an official of the Bangko Sentral ng Pilipinas (BSP) said.

Ma. Cynthia Sison, deputy director of the Supervisory Policy and Research Department at the BSP, said local banks’ cross-border exposures or claims from counterparties in other countries stood at 9.4 percent of total banking system assets.

“Philippine banks are largely domestic-oriented,” she said.

In terms of exposures to China, Sison said the claims from counterparties based in China and its Special Administrative Regions are minimal at 0.86 percent of total banking system assets.

“Banks are not expected to have significant investments in Chinese real estate. Banks are only allowed to invest in real estate for two purposes,” Sison said.

According to the BSP official, Philippine banks could invest in China only if they own real estate for their own use or as banking premises, or if they are allowed to hold real estate assets that are acquired in settlement of claims or foreclosed real estate property.

Furthermore, Sison said banks are required under the law to dispose foreclosed real estate property within five years.

Citi Markets & Securities Services head in Asia-Pacific Stuart Staley said the Evergrande mess would not become a contagion because the Chinese government is not allowing it to run out of control.

“So I think in the short run, we’re not expecting a contagion. But it does have the high potential to affect the economic growth rate within China, and that will have a second-order effect on not just the Philippines, but all the economies that are heavily linked through trading interactions in Asia,” Staley said.

For his part, Citi Philippines country treasurer Paul Favila said there has been very little impact at the currency or even in the volatilities experienced in the local equities markets since the Evergrande issue blew up.

“I guess we could say that the Philippines has always been an internally driven economy, again very much consumption-driven,” Favila said.

Evergrande (previously Hengda Group) founded by Xu Jiayan in 1996, is struggling to repay its creditors as its debt has grown to over $305 billion.

BSP Governor Benjamin Diokno earlier said the Philippine banking system remains stable amid the COVID-19 crisis and in a strong position to service the financing requirements of the recovering economy.

“The positive performance of the Philippine banking system is evidenced by sustained growth in its assets, deposits, and capital, as well as ample capital and liquidity buffers and loan loss reserves,” he said.


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