'Banking system remains strong'

By Paolo Romero Updated February 09, 2009 12:00 AM

Despite the global economic crisis, the Philippine banking system remains relatively strong compared to its foreign counterparts, banking and Monetary Board (MB) officials said yesterday.

The banking industry profits also grew nearly 20 percent last year, they said.

MB member Ignacio Bunye said reforms in the industry helped shield banks from the global economic crisis.

“These reforms include the early adoption of Basel 2, which aimed to create an international standard that banking regulators can use when conceiving regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face; tight control of derivatives and structured products; and constant reminders on risk management and corporate governance to ensure that the banks practice safe and sound banking,” he said.

He cited the comments of Bank of Philippine Islands (BPI) president Aurelio Montinola that 2008 was “a Black Swan year for the banking industry (that was) full of unexpected twists and turns that ultimately led to the global financial crisis.”

BPI chairman Jaime Augusto Zobel de Ayala described it as among “the most turbulent years in the history of global financial markets.”

“Who would have thought that household names like Lehman Brothers, AIG, Citibank, Bank of America cum Merrill Lynch, General Motors, Royal Bank of Scotland, and ING would be critically wounded, partially nationalized, or in the intensive care unit?” Bunye, quoting Montinola, said during a recent meeting.

“Who could have predicted that the price of oil would go from $60/barrel to over $140, and back to below $40, or that three major governments would be dropping interest rates to almost zero?” he said.

“However, not everything should be doom and gloom this year. As the BPI president and CEO also pointed out, the Philippines has survived the crisis so far.”

Bunye said that while major foreign banks were estimated to have close to $1 trillion in potential write downs and have reported massive losses in 2008, the Philippine banks have been reporting relatively minimal write downs and would still report profits—although significantly reduced last year.

“Whereas foreign governments have had to pledge or infuse almost $500 billion in capital or aid programs to help their banking systems, Philippine banks have remained relatively insulated,” he said.

“The only direct hit, according to the top BPI official, is possibly P15 billion or $300 million in new capital for Philippine Deposit Insurance Corp. to fund the payout of deposits of the closed Legacy Group of Rural Banks,” Bunye said, referring to the bank that collapsed and subjected to congressional investigations due to alleged malpractices.

He said Montinola also noted that Philippine banking growth was close to 20 percent as of November 2008, while foreign governments have been criticizing key banking recipients of their aid for refusing to lend.

BPI officials credited the Bangko Sentral ng Pilipinas (BSP) for its continuous implementation of banking reforms that helped the industry.

“Under these circumstances, we get a better appreciation of the active role that the BSP has taken over the years in keeping our financial system relatively more immune and insulated from the adversities that advanced and sophisticated markets are now going through,” Bunye quoted Zobel de Ayala as saying.

With these reforms firmly in place, BPI reported good business volume growth in key priority areas, saying that the bank’s lending even increased by 17 percent, he said.

“(BSP) Governor (Amando) Tetangco was right in saying that the establishment of a sound governance regime cannot be overemphasized. It provides a stronger and more effective financial intermediation that would enable the country’s banking system to weather more challenges ahead,” Bunye said.