Banks in the Asia Pacific region are “in good shape” and well able to absorb any potential contagion that could later arise from the collapse of US bank Silicon Valley Bank (SVB), according to analysts from S&P Global. With the release of its report “SVP Default and Asia Pacific Banks: Secondary Effects are the X-Factor”, S&P held an online press briefing on Thursday, March 16, for regional journalists to flesh out the report’s analysis. Basically, it noted that Asia Pacific banks have become accustomed to “absorbing global contagion effects.” “Most institutions in the region withstood the global financial crisis and the European sovereign debt crisis. We anticipate a similar outcome from the SVB failure, a much smaller contagion event,” said S&P. It added that any direct exposures are “negligible” while secondary effects or impacts are still manageable. “Only a significant escalation would be sufficient to change our view,” it said. In the report and in the online press briefing, S&P said in the region, it will be the Japanese banks which have “large holdings” or exposures of US government bonds that will be affected by “weakened market sentiment” because of SVB but they do not see any rating changes for these banks. Meanwhile, S&P said funding remains to be a strength for Asia Pacific banks. It has reviewed that 10 of 18 banking systems they watch in the region have either “very low” risk or “low” risk factors. Based on its key banking sector analysis, the Philippines in terms of economic risk trend and indusry risk trend have “stable” assessments. Philippine banks’ ability to handle system risks under S&P’s "Banking Industry Country Risk Assessment” report or BICRA is still at level “5” which is a classification that was comfortably assuring, as far as the Bangko Sentral ng Pilipinas is concerned. Under S&P’s economic risk review, the Philippines have “very high” economic resilience risk and “high” credit risk in the economy. However the country has “low” risk of economic imbalances. In terms of industry risk, the Philippines have a “high” institutional framework risk while the risk for competitive dynamics and system wide funding is assessed as “intermediate” risk factors. During the online press chat, S&P analysts said Philippine banks mostly hold investment securities issued by the government. About one-third of local banks’ books are domestic bonds. Before 2022 when interest rates started rising, S&P analysts said Philippine banks have divested some of these investment securities, therefore holdings were decreased. On average, about 15 percent to 20 percent of local banks’ books are investment securities compared to SVB with 40 percent to 55 percent of balance sheets invested in available-for-sale and held-to-maturity portfolios. “For Philippine banks its mostly the fixed-rate government bonds. In the event that there’s a liquidity crisis they can rediscount and place this with the central bank as cash,” said an S&P analyst. In the report, S&P noted that there are no banks in Asia Pacific that are similar with SVB’s commercial deposit base or clients that are mostly technology firms, health and life sciences sectors. “SVB's average depositor size was large compared with typical banks in Asia-Pacific with 88% of SVB's deposits above the Federal Deposit Insurance Corp.'s US$250,000 limit. The deposit bases of most Asia-Pacific banks tend to have a significantly larger retail flavor,” said S&P. Generally, S&P said Asia Pacific governments are more supportive of their banking systems compared with the other regions, especially to systemically important banks. However, even if SVB problems will not have an immediate impact on the regional bank ratings, the “knock-effects” are another matter. “Stresses that banks can comfortably take in their stride could morph into bigger problems that are difficult to predict. They could also connect or combine with other stresses causing a confluence of negative developments that could yet test buffers across the Asia-Pacific banking sector,” said S&P. Analysts told reporters during the online press chat that regulators will be conducting more stress testing exercises in the coming months for a closer monitoring of banking systems. This is despite that banks in the region have adequate liquidity buffers. “Should contagion risks stemming from the SVB default be more complex or troublesome than we now envisage, the Asia-Pacific banks systems are in good shape,” said S&P analysts.