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BSP on guard against asset bubbles

(The Philippine Star) | Updated May 4, 2013 - 12:00am
MANILA, Philippines -  The Bangko Sentral ng Pilipinas (BSP) is on guard against the threat of asset bubbles following succeeding promotions to investment-grade status expected to boost the country’s financial system.
On Thursday, Standard & Poor’s Ratings Services upgraded the country’s credit rating to BBB- from BB+, an investment grade with a stable outlook. This followed a similar action from Fitch Ratings last March 27.
“With the sovereign upgrade of the Philippines, it is expected that the (financial) system will further expand. Thus, the BSP remains vigilant for any asset price bubbles and/or other vulnerabilities,” the central bank said.
The BSP mentioned this on a statement accompanying the Status Report on the Philippine Financial System for the second half of last year, which was released yesterday.
“Challenges also remain in the development of the financial markets and the infrastructure to support such developments to keep abreast with international norms,” it added.
Local banks have enjoyed high capitalization and assets, backed by the low interest environment that are driving them to lend more.
While more lending is good for consumption and investments, the BSP wants to make sure lending is done properly, Governor Amando Tetangco Jr. said.
The fear is, with the low interest environment prevailing, banks may resort to excessive lending as they seek higher returns without minding credit standards. Default on loan payments is one recipe for asset bubbles.
So far though, “there are no emerging signs of asset bubble in the property sector,” Tetangco told reporters.
In the BSP report, it was noted that the local banking system boosted its resources by 9.8 percent last year to P8.050 trillion from P7.335 billion a year ago. They also remained profitable, with net income up 17 percent year-on-year.
Buffer funds, as measured by capital adequacy ratio, are also sufficient at 17.9 percent as of September last year. This is comfortably above the BSP-mandated 10 percent and the minimum international standard of eight percent.
Assets also continued to be of good quality, with non-performing loans— or those unpaid 30 days after the due date— down to 2.5 percent last year from 2.8 percent previously.
“What we are observing is that the financing terms are getting more and more attractive. That is why we would like to closely monitor this,” he explained.
“Our main consideration here is a sound risk management or the implementation of sound risk management of banks,” he added.
It is worth noting that the sound local financial system was among several factors that drove S&P to upgrade the Philippines credit rating.
“Despite the global fragilities, the Philippine financial system continued to deliver a remarkable performance in 2012 with sustained profitability and stronger capitalization,” the central bank said in the report.

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