PHILIPPINE banks were found strong enough to survive extreme levels of risk such as giving up half their loans or having to write them off as losses, for instance, the Bangko Sentral ng Pilipinas (BSP) said on Thursday.
BSP Governor Amando M. Tetangco Jr. pointed this out in a prepared speech he delivered at the Philippine International Banking Convention held at the Makati Shangri-La Hotel.
According to Tetangco, so-called stress tests show the 55 universal, commercial and thrift banks able to absorb extreme values of risks without falling over and having to recapitalize themselves.
This developed as the BSP separately released latest data on the adequacy of the banks’ capital or CAR averaging 16.48 percent as at end-March this year, or more than twice the global norm of only 8 percent.
“The banking system registered average CARs of 16.48 percent on solo basis and 17.39 percent on consolidated basis at end-March 2011, which were higher than CARs posted as of end-December 2010. Similarly, the tier-one capital ratios of the banking system remained high at 14.21 percent and 14.23 percent on solo and consolidated bases, respectively,” the BSP said.
With the banks’ capital adequacy ratio this much higher than that mandated by regulation, the banks would still be able to stand their ground even if they were to write off loans as large as 50 percent, Tetangco said.
The banks should also do well and not be forced to recapitalize even if local as well as foreign interest rates were to rise by 500 basis points (or by five percentage points) and the local unit the peso were to lose value against the US dollar by 30 percent, he quickly added.
Tetangco attributed the increased capacity of the banks to cope with extreme financial stresses to the early adoption of the Internal Capital Adequacy Assessment Process or ICAAP program in 2008 or at the height of global difficulties.
“We pushed forward because we believe strongly in the value of such exercise and the results have been rewarding. We have had very candid exchanges with ICAAP-covered institutions and these banks have likewise appreciated that there are strategic gains that accrue to them for such a program,” he said.
The BSP recently extended the ICAAP program by covering all foreign banks operating in the country.
“Instead of relying solely on their parent, we believe holding banks operating in the Philippines to a standard of accountability and shared governance. By covering foreign banks, we will have a more complete view of how market operators see the risks in their operations and how they manage the same. This is an important element because of the potential for spillovers if their risks are not even considered on the radar screen of the regulator,” Tetangco said.
