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BAP: US bank failures to have minimal impact

Local banks' share prices drop; BSP still seen hiking rates

Share prices of Philippine banks may have fallen but the domestic financial sector as a whole is expected to be minimally affected by the fallout from a US banking crisis, an industry group said on Tuesday.

"The Bankers Association of the Philippines (BAP) assures the Filipino public that recent developments in the US financial system have no substantial or material impact on Philippine banks," it said in a statement.

"Banks have diversified deposit bases that include all sectors of the Philippine economy, allowing them to continuously provide the liquidity needs of their clients," it added.

"Additionally, banks in the Philippines continue to have capital and liquidity ratios that exceed the requirements set by the Bangko Sentral ng Pilipinas."

The failures of two US regional banks — Silicon Valley Bank (SVB) and Signature Bank — in just two days have reverberated across financial markets worldwide and raised concerns over the health of the global banking industry.

Share prices hit

Philippine banking shares have fallen since SVB collapsed on Friday with the financials sub-index down 1.86 percent on Tuesday.

Among the biggest decliners for the day were BDO Unibank Inc., whose share price fell by 2.13 percent, or P2.60, to P119.40; Metropolitan Bank and Trust Co. down 4.04 percent, or P2.40, to P57 per share; and Bank of the Philippine Islands, which saw a 1.24-percent, or P1.30 drop, to P103.80 per share.

The benchmark Philippine Stock Exchange index plunged by 2.31 percent.

US authorities have moved to contain the fallout from the bank failures, with regulators assuring bank clients that they would get all their money back even as they declined to provide bailouts to SVB and Signature.

On Monday, US President Joe Biden told Americans that they "can rest assured that our banking system is safe" and that the government would "do whatever is needed on top of all this [measures already taken]."

Prudential measures implemented by the BSP, the BAP said, have provided the "necessary support that allows the Philippine banking system to withstand economic shocks."

"The BAP continues to work with BSP and other stakeholders to pursue reforms that will lead to an even stronger financial system that sufficiently provides the financial needs of the banking public," it added.

A halt to tightening?

The impact of the US bank failures could extend to interest rate hikes, with some analysts saying that the Federal Reserve (Fed) could pause its tightening cycle to ease pressure on the financial sector.

SVB's collapse has been blamed on sharp Fed rate increases that hit the value of securities held by the bank.

Central banks have been raising interest rates in a bid to contain surging inflation and the Fed will have to take into consideration February price data due to be released Tuesday, US time, when it meets on March 21 to 22.

As for the Philippines, analysts said that the BSP's policymaking Monetary Board would likely order a smaller rate hike on March 23 as inflation remained elevated at 8.6 last month. A 50-basis point (bps) increase was announced in February after inflation hit a 14-year high of 8.7 percent in January.

"Locally, the cause of inflation remains supply driven and [the] BSP is ahead of the rate curve by 1.25 bps, giving it leeway to slow down as well with a possible 25 bps hike this month," said Robert Dan Roces, and economist and Security Bank Corp. assistant vice president.

Suhaimi Ilias, chief economist at Maybank Investment Bank, said "we are not changing our view of BSP still on course for another hike in its policy rate as inflation remains high and sticky at well over 8 percent... and especially in light of the acceleration in core inflation indicating underlying inflationary pressures."

University of Asia and the Pacific economist Victor Abola echoed this, saying, "I think local inflation is too high and so the BSP cannot risk being viewed as [being] much behind the curve."

Global crisis repeat unlikely

He added that SVB's failure was not likely to lead to a repeat of the 2008 global financial crisis that was caused by banks taking on too many risks.

Among others, "bigger banks have much more liquidity than SVB."

"Our banks remain highly capitalized and should manage to largely avoid major threats to the financial system's stability," Abola continued.

Nicholas Antonio Mapa, senior economist at ING Bank Manila, said any pause by the BSP would likely only come in May should the inflation trend lower.

China Banking Corp. chief economist Domini Velasquez and her counterpart at Rizal Commercial Banking Corp., Michael Ricafort, also said that local monetary authorities would prioritize bringing down inflation.

Union Bank of the Philippines chief economist Ruben Carlo Asuncion, meanwhile, said the BSP would still have to take into consideration developments in the US.

"We know that these institutions [the Fed and the BSP] are always stressing that they are data-dependent. Thus, the release of US CPI (consumer price index)... will be critical for both institutions moving forward," he said.

Source: Manila Times

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