Phl banking system strong amid collapse of 3 crypto-exposed US banks – BSP

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The Bangko Sentral ng Pilipinas (BSP) has given assurances the country’s banking system remains sound despite the collapse of three big US banks, which had varying exposure to cryptocurrencies.

BSP Gov. Felipe Medalla said stress tests, using “extreme” scenarios, have been administered to local banks, which have proven to be resilient against shocks. He said the Philippine banking system remains safe and sound with no material exposure to the failed institutions.

He said the BSP is ready to act to address potential contagion risk arising from the collapse of Silicon Valley Bank, Signature Bank and Silvergate Capital.

“We have shown our resilience through the pandemic, and we continue to be strong in the face of the ongoing turbulence in the global markets,” Medalla said.

The BSP chief said monetary authorities in the Philippines are ready to respond accordingly as the regulator is in constant talks with leaders of the local banking industry.

“Nonetheless, we will respond accordingly as market conditions evolve. Our longstanding efforts in consultation with the industry in setting prudent standards and executing risk practices remain the key pillar in safeguarding the interests of the Filipino people,” he said.

He said the central bank recognizes the actions taken by banking supervisory authorities to address the potential contagion risk from the closure of banks.

SVB’s collapse was sandwiched between the implosions of crypto-focused Silvergate, and Signature While not as focused on crypto as those two firms, Silicon Valley Bank (SVB) had some high-profile crypto customers, such as stablecoin issuer Circle Internet Financial, and blockchain-based digital settlement provider Ripple, Cointelegraph has reported.

In a report, Fitch Ratings said direct exposures of rated banks in Asia Pacific to SVB and Signature are limited.

“Weaknesses that contributed to the failure of the two banks are among the factors already considered in our rating assessments for APAC banks, but these are often offset by structural factors, such as regulation and our expectations that authorities would provide liquidity support if needed,” Fitch said.

The debt watcher pointed out that the risk of volatility could be significant for digital banks in the region.

On the other hand, it said securities portfolio valuation risks for Asia Pacific banks are manageable but exposures are greatest in India and Japan.

“The direct exposures among Fitch-rated banks in APAC to SVB and Signature that we are aware of are not material to credit profiles,” Fitch said.

Likewise, S&P Global Ratings believes Philippine and other Asian banks are well-placed to absorb potential contagion effects emanating from the collapse of SVB.

In a webinar on the impact of the SVB default on Asia Pacific financial institutions, S&P said the direct exposures of Asian banks are negligible and secondary impacts are manageable.

“Only a significant escalation would be sufficient to change our view,” the debt watcher said.

It added banks in the region are in good shape as SVB contagion creeps across Asia Pacific.

For one, S&P director Ivan Tan said the investment securities typically held by Philippine banks are higher compared to the average Southeast Asian banks rated by the debt watcher.

“When interest rates was extremely low in 2020 and 2021, the investment securities held by Philippine bank are high. But I think the Philippine banks, what they have done, is that they timed the market correctly,” Tan said.

According to Tan, Philippine banks actually made profit from their holdings that were divested before the BSP started its tightening cycle by hiking interest rates in May last year.

“So when 2022 came around, and just before the BSP started to hike rates, you can see the holdings of investment securities come down. So on average if you look at the banking system now, it is around 15 to 20 percent of their books,” he added.

This is way below the exposure of SVB, which is about 55 percent of its balance sheet.

Furthermore, Tan said most of the holdings of Philippines banks are fixed-rate government bonds.

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