Reforms helped RP banks weather global crisis

A YEAR AFTER LEHMAN COLLAPSE

The banking system today-a year after Lehman-remains stable. It has grown further in asset size and deposit base. It remains generally profitable as banks continue to lend, while delinquencies have stayed within manageable levels.

Banks have also enjoyed fee-based income with the recent moves of corporates to tap the bond and equity markets for additional funds. BanksÕ balance sheets have continued to strengthen, with the NPL (non-performing loan) ratios further improving. The system has also maintained adequate capital, with system CAR (capital adequacy ratio) still above national and international standards. Therefore banks continue to enjoy sufficient buffer to be able to absorb any further shocks from the crisis.

The preemptive liquidity enhancing measures we put in place in Q4 2008 have, I believe, provided confidence in the banks and sustained normalcy in the system during that critical time. ÊWhat we have seen is that our banks learned to adjust during this crisis, tightening credit standards somewhat as a first defense, while keeping flexible to know when to take advantage of opportunities also. Our survey of senior loan officers reflects this. ÊThe banks have also used this crisis as a timeÊto strengthen their own risk management capabilities. ÊSome have also used this to consider partnerships and mergers as a core strategy.

I believe the banking reforms we had instituted prior to the crisis have helped banks to be successful in weathering this crisis. As the BSP continues on the reform agenda, we will incorporate lessons learned from this crisis. We are now studying how we can adopt any suggestions forthcoming from the Financial Stability Board. We are also looking to craft our own macro-prudential regulations, those that would be appropriate to our own credit dynamics to help dampen the impact of any similar future crisis. ÊFinally, we are working to formalize financial stability into the BSP mandate as we put forth to Congress further amendments to the BSP Charter.

I am confident that as we continue dialogue with banks on issues that are important to them and to the national interest, our reform agenda and policies would be more responsive to changes in the domestic and global financial and macro environment. By keeping communication open, our policy intentions will be clear, better appreciated by stakeholders and therefore will continue to be effective.

EDITORiS NOTE: This is a transcript of Mr. Tetangco’s response to The Manila Times senior reporter, Maricel E. Burgonio’s query on his assessment of the soundness of the local banking sector a year after Lehman Brothers filed for bankruptcy. The collapse of that venerable US investment bank accelerated a global financial crisis that began with defaults on US sub prime loans, and caused credit markets worldwide to freeze. –Amando M. Tetangco Jr., Bangko Sentral ng Pilipinas Governor, Manila Times