The country’s ‘too big to fail’ banks continue to be strong and well-capitalized as well as liquid with stable funding to support operations in the second year of the COVID-19 pandemic, assured Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.
Diokno only reiterated what he said in January that in assessing how these big banks performed during the pandemic -- referred to as domestic systemically important banks (D-SIBs) – the D-SIBs remain on ‘solid footing’ after the BSP to some extent reviewed the full impact of the public health crisis.
"D-SIBs remain on solid footing amid the heath crisis. We see this contributing to the overall soundness of the domestic financial system and the country's financial stability," said Diokno during his weekly “GBED Talks” online.
Diokno reiterated that the still-undisclosed D-SIBs are liquid and well-capitalized and has the ability to handle potential losses. “Banks identified as D-SIBs are required to have additional Common Equity Tier-1 capital or a higher loss absorbency requirement. This is aimed at ensuring that D-SIB risk exposures are supported by high quality capital instruments to increase their resilience,” he said.
D-SIBs’ capital buffers are still well above the regulatory minimum, with a solo capital adequacy ratio of 15.8 percent as of end-2020, even higher compared to 15.3 percent in 2019.
Its latest liquidity coverage ratio and net stable funding ratio as of end-February this year were also higher at 192.8 percent and 142.9 percent, respectively. These liquidity ratios measure banks’ short-term and long-term liquidity and were higher than what the BSP considers as the minimum. This indicates D-SIBs’ ability to manage short- to medium-term shocks on their liquidity position.
Diokno said D-SIBs’ average gross non-performing loans (NPL) ratio as expected rose to 3.3 percent in the first quarter of 2021 which the banks matched with a high NPL coverage ratio of 99.4 percent. This NPL ratio increase is lower compared to the banking system’s 4.21 percent and industry’s 3.73 percent.
D-SIBs, characterized as banks whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy, recorded a 6.2 percent asset growth as of end-March this year, as well as an 8.5 percent increase in deposits. These numbers compare well with the 5.6 percent asset growth and 7.8 percent deposit growth posted by the banking system.
D-SIBs' loans contracted by 3.6 percent as of end-March, lower than the 3.9 percent decline in the banking system’s loan portfolio, said Diokno.
BSP’s D-SIBs policy is aligned with the Basel Committee on Banking Supervision which aims to reduce the probability of failure of D-SIBs by increasing their loss absorbency and to reduce the extent or impact of failure of D-SIBs on the domestic or real economy.