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RP banks’ exposure to soured assets amounts to P60 B

By Des Ferriols
Wednesday, October 1, 2008 [ ]

The total exposure of banks in assets that were hit by the US crisis amounts to roughly P60 billion, but monetary authorities said the amount is well within the capacity of the industry to handle.

The Bangko Sentral ng Pilipinas (BSP) assured the public yesterday that it is on “high alert”, monitoring banks on a daily basis to establish their total exposure to the ongoing crisis in the US.

BSP Deputy Governor Ernesto Espenilla told reporters that based on the latest assessment of the central bank, commercial banks are estimated to have total exposures of about one percent of their total assets which stood at about P6 trillion.

It was earlier estimated that about six banks had exposures of about P17 billion to Lehman Brothers.

Including exposures to other troubled financial institutions such as Merrill Lynch, the total amount was closer to P60 billion.

According to Espenilla, these exposures covered investments in various financial institutions both in the US and Europe that would be hit one way or the other by the fallout from the US financial market crisis.

“The exposure is actually very limited and well within the capacity of the industry,” Espenilla said. “More importantly, no single bank is heavily exposed.”

The BSP has been mum on what it was doing to shield the country from the cascading impact of the US market turmoil but Espenilla said the impact was not really as heavy as the public perceived.

“We are on high alert, we are carefully monitoring commercial banks, establishing what really are their exposures and determining what measures are being taken to cover these exposures,” he said.

Thus far, Espenilla said the BSP is fairly confident that the industry as a whole had already built up adequate resources over the last decade after learning the hard way from the 1997 Asian crisis.

“The mechanism of the US crisis is no different from the 1997 Asian crisis when we went through the same problem,” he said.

At the time, Espenilla said the entire banking sector sustained bad assets of about P600 billion and even then, the size of this exposure was not considered significant.

“It was a problem only because the government was very deep into fiscal deficit and didn’t have the money for a bail-out plan,” Espenilla explained. “So we had to do it the hard way, all we could offer was tax incentives in order to let private money to come in.”

This time around, Espenilla said the banking industry is amply insulated by the capital buildup that it had gone through during the years that followed the Asian crisis.

The market was still awaiting the resolution of the $700-billion bail-out plan that was rejected by the US Congress, a development that sent stock and currency markets crashing.

“We’re optimistic that this bail-out plan will still push through but if it doesn’t, the US would still be ground zero and the impact on us would be on trade, especially if their economy slips into recession,” Espenilla said.

There were fears of thinning credit in the local market but Espenilla said this should be no worry since the country had over $36 billion in reserves and the balance of payments had a rolling surplus of over $2 billion. “A $2-billion surplus is nothing to sneeze at,” he said.

Espenilla said there is an added comfort level from remittances, a renewable source of inflows that were expected to grow by only 10 percent but have actually been growing by 18 percent.

“We’re facing challenging times but we are not necessarily in a bad shape,” Espenilla said. “Even if the bailout plan doesn’t work—which I still think it will—we’ll have to rely on our own resilience.”


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