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Local banks “safe” from Silicon Valley Bank crisis

The Bangko Sentral ng Pilipinas (BSP) and the leading industry group of private and government banks on Tuesday sought to calm markets and the public amid contagion fears from a brewing banking crisis in the United States.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said there was limited fallout to the country following the failure of Silicon Valley Bank (SVB), whose rapid collapse last week was touted as the second-largest bank failure in the United States.

“No reported exposure. By the way, banks’ foreign currency deposit units’ assets are mostly loans, Republic of the Philippines dollar bonds and sovereign bonds of countries with high credit ratings,” Medalla said in a message sent to the Inquirer.

Asked whether the closure of California-based SVB is comparable to the 2008 financial crisis where nearly 500 US banks were shuttered, Medalla answered with a “no.”

“And the [Federal Reserve] has reassured markets by implying that depositors will not lose their money, and by saying that banks can borrow from [them] using the par value, not the market value, of their securities holdings as collateral,” he added.

The Bankers Association of the Philippines (BAP) also assured the public that the “black swan” event in the US financial system has “no substantial or material impact” on the local 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. Additionally, banks in the Philippines continue to have capital and liquidity ratios that exceed the requirements set by the [BSP],” the industry group said in a statement on Tuesday.

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

The BAP ended its statement by saying that it continues to work with the BSP and other stakeholders to pursue reforms that will strengthen the country’s financial system.

The US Federal Reserve is expected to announce another rate hike next week, a move often matched or copied to a degree by the BSP.

But a Fed rate hike next week may now be a distant possibility, at least according to Ipek Ozkardeskaya, a senior analyst at the financial and trading services firm Swissquote Bank.

“The Fed may want to think twice before stepping on the gas this month. (Jerome) Powell certainly doesn’t want to go down in history as the clumsiest Fed president in the history of the Fed,” he said.

Despite this, Nicholas Mapa, ING Bank senior economist in the Philippines, said he believes the BSP would continue with its 25-bps rate increase next week no matter how the Fed reacts to the SVB fiasco.

“[Medalla] mentioned previously that rate decisions may need to take their cue from domestic inflation first rather than what happens with the Fed and its policy,” Mapa said.

Source: INQUIRER.NET 15 March 2023

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