PHL banks have no exposure to Silicon Valley Bank — BSP

PHILIPPINE banks have no reported exposure to the collapsed Silicon Valley Bank (SVB), the central bank governor said on Monday.

Banks’ foreign currency deposit units’ assets are mostly loans, Philippine dollar bonds and sovereign bonds of countries with high credit ratings, Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla told Reuters in a mobile text message.

Markets around the world have been rattled by the back-to-back collapse of Silicon Valley Bank and New York’s Signature Bank, even after the US government sought to allay fears of systemic risk.

Banking regulators on March 10 closed down SVB, the second-biggest bank failure in the US. Two days later, regulators shuttered Signature Bank, the country’s third-largest bank failure.

The Bankers Association of the Philippines (BAP) assured that developments in the US financial system have no “substantial or material impact” on the Philippine banking industry. 

“Banks have diversified deposit bases that include all sectors of the Philippine economy, allowing them to continuously provide the liquidity needs of their clients,” BAP said in a statement on Tuesday.

The BAP said banks continue to have capital and liquidity ratios that exceed the requirements set by the BSP.

“The prudential measures implemented by the BSP provide the necessary support that allows the Philippine banking system to withstand economic shocks,” the group said.

Meanwhile, the fallout from the collapse of SVB may prompt monetary officials to tighten policy at a slower pace in the coming months, analysts said.

Security Bank Corp. Chief Economist and Assistant Vice-President Robert Dan J. Roces said regulators have minimized the impact of the SVB collapse on the wider financial sector, thereby easing market worries.

“Additionally, the US Fed has made additional funding available to eligible depository institutions to avoid damaging bank runs. So this seems to be contained, as such we do not see any direct local fallout from the SVB collapse,” Mr. Roces said.

US authorities have implemented several measures to boost confidence in the banking system after the incident, saying all SVB customers will have access to their deposits.

The Fed also said it would make additional funding available through a new Bank Term Funding Program, which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.

“However, the material weakness shown by the small banks is enough to cause negative sentiment in markets. The Fed, which still sees inflation as public enemy number one, will continue with its hiking pace, yet current sentiment puts it between a rock and a hard place,” Mr. Roces said.

He said the Fed may continue policy tightening, but at a softer pace. Mr. Roces said he expects the Federal Open Market Committee to raise borrowing costs by 25 basis points (bps) on March 21-22.

In an e-mail, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said Philippine banks are relatively stable, but although there may be some impact on financial market sentiment.

“The sense is that the Fed and the BSP can’t go heavy on rate hikes for much longer given that it might force a financial sector collapse if more banks go belly up,” Mr. Mapa said.

“Furthermore, it has triggered the knee-jerk reaction of investors questioning if local banks are safe bets,” he added.

The Monetary Board hiked its benchmark policy rate by 50 bps to 6% last month — the highest in nearly 16 years. It has raised rates by 400 bps since May 2022. The BSP is scheduled to meet on March 23 to discuss policy.   

“Locally, the cause of inflation remains supply driven, and BSP is ahead of the rate curve by 125 bps, giving it leeway to slow down as well with a possible 25-bp hike this month and likely taking heed of the impact of contractionary policies as what happened in the US versus a likely slower inflation trajectory in the months ahead,” Mr. Roces added. 

The benchmark Philippine Stock Exchange index declined by 151.12 points or 2.3% to end at 6,393.33 on Tuesday, while the broader all shares index went down by 64.35 points or 1.82% to close at 3,454.48. The financial index dropped 1.85% to 1,764.71. — Keisha B. Ta-asan with Reuters